Using Leverage with Forex
What is leverage? Leverage is the use of borrowed capital, such as margin, to increase the potential return of an investment.
In Forex trading, leverage is used to significantly increase the returns on a currency pair trade. By using ‘borrowed’ money to increase the amount you can trade you can come out with a greater profit from the fluctuations in exchange rates between two different currencies. Forex brokers offer the highest leverage rates available in any investment market.
Win Some, Lose Some
Of course, this ability to earn profits over and above the amount of money you started out with can also work against you. If your trade goes in the opposite direction of the one you anticipated, you can lose not only the money you had on deposit in your account but the leveraged money as well, putting you in deep debt and in a bind to recoup the leveraged money.
There are ways to safeguard against losing all your money. Read more
If you are a forex trader, you of course noticed the advance of the CHF (swiss franc) against most of the other currencies. According to the OECD’s calculations, the swiss franc is 44% overvalued against the dollar and 42% overvalued compared to the euro. And this has happened steadily in the last 6 months or so, without a retreat.
What would be the explanations?
One of them, widely accepted among the forex traders, is that the CHF is a so-called proxy (similar indicator) for gold and other commodities. It is understandable that the investors are not willing any longer to bet on the gold, which has risen 6 times during the last years and which is causing a “tulip mania” among masses. And whilst other commodities are harder to trade and more volatile, the CHF is still a paper currency, backed by the Swiss National Bank, which has some advantages. Read more
One more book about trading various financial assets… Shouldn’t the world be tired about these?
I guess not. Trading is a financial knowledge field which advances at a blistering pace, not only technologically, but also behaviorally. Take for example the way the introduction of the Ipad has changed the trading behavior of the masses – now you can research, plan and place your orders online, straight from your morning coffee table. Isn’t this brave new world wonderful?
Yes it is my friends. But it is also dramatically different from one year ago. Think about it a little – how many traders are now online compared with 5 years ago? (this means increased competition, right?) How many tools are you using today compared with one year previously? How did the playing field changed?
It has been quite a while since I have not written any longer about my forex adventures. This does not mean that I did not followed up on how the currency pairs moved, just that I was a bit absorbed with other blogs…
lately I abandoned a bit my trading with the GBP/JPY pair and focused rather on the EUR/USD currency wildhorse. And it has been quite a ride Read more
Or (if you want) miss-correlations. As all of your guru traders will say, in the forex trading you learn for your lifetime. And when you think you saw them all, something comes and takes away all your confidence (and hopefully not your profits, especially when you have the risk management tools in place).
What happened? I decided to test today on the MetaTrader 4 (MT4) platform the buy stop and the buy limit orders on the “twister sister” or the GBP/JPY pair. And the results were quite interesting.
So what happened? I placed from the previous day a buy limit order on the GBP/JPY, on the assumption that the yen currency will devaluate a bit whilst the pound will be stable. This was based on the relatively mild-to-bad incoming economic news: the trade balance of Japan was on the larger side of the forecasts, whilst the GBP news (public sector borrowing, retail sales and preliminary mortgage approvals, to name just a few) should have been better. And so they were. Read more