What's the condition of Leverage on OctaFX's MT4, MT5 and cTrader?

Comparison of OctaFX’s trading account types

OctaFX mainly offers MT4 and MT5 trading account types.

See the table below to know the difference between these trading account types

Open OctaFX’s Account for free

What is leverage?

Leverage is the ability to control or manage a large amount of money.

Only a small amount of this large amount of money is your own money, and the rest is borrowed money.

In financial terms, this is called “others’ money” (OPM).

A good example of leverage is when investors borrow money to invest in stocks.

For example, ACME’s stock price is $100, and you have $10,000 at this time.

The maximum number of shares you can buy without leverage is 100.

If the company’s stock rises to $200 and you decide to sell, your maximum profit will be $10,000.

However, if you borrow another $10,000 from the bank and use it to buy stocks, you can now buy 200 shares.

When the stock doubles, your total profit will be $40,000. When you return the 10,000 borrowed funds to the bank, your net profit is $20,000.

When leverage comes into play, it is very useful for traders and investors.

When it fails, the loss may exceed the investor’s initial capital, resulting in a negative balance.

In the above example, if the stock drops to zero, the investor will first suffer a personal loss of $10,000.

Then, they need $10,000 to repay the bank.

What is Margin and Leverage?

How does leverage work in financial markets?

In the foreign exchange and CFD industries, the concept of leverage is similar to the concept of borrowing money to buy stocks.

Online brokers provide their clients with virtual credit called leverage.

This kind of virtual credit usually uses customers’ deposits as a guarantee to enable them to trade more financial assets.

It is impossible to discuss the concepts of leverage and margin in trading separately.

Margin is the amount of funds a trader needs in order to use leverage.

This is just a credit margin. The broker needs this margin before providing credit to the trader, and the margin is expressed as a percentage.

If the broker requires a 2% margin, your leverage is 1:50, and if they require a 0.25% margin, your leverage is 1:400.

For example, a trader has 1,000 USD in his account and uses a leverage ratio of 1:5, which means that the trader can purchase assets worth 5,000 USD.

If the trader’s leverage ratio is 1:100, this means that the trader can purchase assets worth $100,000.

The leverage provided by the broker depends on the regulations of the regulatory agency.

For example, in the European Union, regulators set the upper limit of such leverage ratios to 30:1.

In the United States, the Financial Industry Regulatory Authority (FINRA) requires brokers to only provide leverage to accounts above $2,000.

Findo out how leverage works with OctaFX

What’s the merit of using leverage?

There are three advantages to using leverage.

First of all, it can help traders maximize the profit of each transaction, as you will see in the example below.

Second, leveraged traders with limited resources can trade expensive assets such as Bitcoin, gold, and platinum.

Without leverage, a trader with a $1,000 account cannot trade gold at the current price of $1,200.

The level of leverage used by traders plays a very important role in determining whether they can successfully trade.

When the transaction goes smoothly, traders with high leverage can make more profits than traders with low leverage.

For example, if you have 1,000 USD in your account, you decide to sell the current trading price of 110 USD/JPY.

At this time, your account’s leverage ratio is 1:50, and the broker requires a 2% margin.

In addition, suppose 1 standard lot The pip value is $5, so the pip value of 5 standard lots is $25.

In this transaction, you will be short-selling USD/JPY worth 50,000 USD.

In the above assumption, if the USD/JPY moves down 100 points, your profit will be 2,500 USD (100 points x 25 USD)

Or, if you are using a leverage ratio of 1:10, then you will have a total trading capital of $10,000.

If you make a profit of 100 points, your total profit will be $250.

Start trading with OctaFX’s high leverage

How to manage risks when using a high leverage?

Therefore, when the transaction goes smoothly, higher leverage can translate into higher profits.

If the trading assets move in the opposite direction, traders with high leverage will lose more money than traders with low leverage.

Novice traders tend to overestimate the role of leverage and tend to use high leverage all the time, but this is not the best practice.

On the contrary, experienced professionals understand the risk of excessive leverage.

In order to reduce the risk, they usually use low leverage to make a small profit, which can accumulate less in the long run.

E.g. In January 2015, the Swiss National Bank removed the peg of the Swiss franc to the euro, which surprised the market.

This has directly led to huge market volatility. Many highly leveraged companies are on the verge of bankruptcy.

Many traders who short the Swiss franc-they did not set a protective stop loss to protect their trades-lost all in a few seconds.

In order to reduce risks, brokers often reduce their leverage when there are major market fluctuations, such as during major elections, major referendums, and major economic data releases.

OctaFX protects traders from these extreme market events by providing negative balance protection.

The biggest loss you may experience is your initial deposit.

What’s the relation of Leverage, Margin and Margin Call?

What you should know before applying a high leverage

Leverage is a double-edged sword.

When the transaction goes smoothly, traders with high leverage will make more profits.

When the transaction is not smooth, the loss will often exceed the total capital of the account, because all traders will make mistakes.

The secret is to find a suitable one for you.

For novice traders, it is recommended that they first understand the meaning of leverage and margin, and then they should start trading with the lowest available leverage.

When they become more experienced, they can increase their leverage to a level that does not expose them to great risks.

Trade Forex with 1:500 leverage of OctaFX

OctaFX’s 1:500 leverage supports your trading

The financial investment trading market is developing rapidly.

Today, anyone with an Internet connection and a computer or mobile device can trade the same tools as a Wall Street trader.

This is in sharp contrast to a few years ago where transactions were basically large investment banks and hedge funds.

With the development of the financial investment trading market, many products such as options, social trading and algorithmic trading have emerged.

Brokerage firms also introduced new types of assets including cryptocurrencies.

In order to make trading easier and more profitable, these companies have also introduced margin and leveraged trading.

These are two concepts that are often confused in financial markets.

Margin refers to loans provided by brokers to traders to help them conduct large transactions.

On the other hand, leverage is the additional purchasing power gained by traders using margin.

Go to OctaFX Official Website

What is a Leveraged Forex Trading?

The concept of leverage has been used by governments, companies, and individual borrowers for decades.

In terms of financing, it helps borrowers improve their borrowing capacity.

In trading, leverage allows traders to trade assets that are currently unaffordable.

For example, Berkshire Hathaway’s stock price is currently $300,400.

This means that ordinary traders are unlikely to be able to afford this stock.

With leverage, traders can easily afford this expensive stock, even if their account is less than $10,000.

The main benefit of using leverage is that it enables traders to buy and sell assets that they could not otherwise afford, which also helps them to obtain more profits than when trading without leverage.

For example, suppose two traders—Adam and Bruce—each have accounts of $10,000.

After analysis, they concluded that the current trading price of US$120 USD/JPY will go down.

Their broker requires a 1% margin. Therefore, they placed a short-term order, hoping that the currency pair will continue to fall.

Adam decided to use a leverage ratio of 1:50 and short USD/JPY with an account of USD 10,000.

Using this leverage, Adam made a short position worth $500,000 (10,000×50).

The pip value of USD/JPY is 8.30 USD. In addition, assume that the USD/JPY point value of 5 standard lots is approximately USD 41.50.

Therefore, if the USD/JPY drops to 119 USD, the trader will make a profit of 100 points, which is equivalent to 4150 USD and gain 41.50% of the profit.

On the other hand, Bruce decided to trade a short-term order with 1:5 leverage.

This transaction is equivalent to a short position of USD 50,000 in USD/JPY.

If the USD/JPY moves 100 points to 119 USD, the trader’s profit will be 415 USD, which is equivalent to 4.15% of the total capital.

Therefore, the leverage used by traders plays an important role in determining their profit per transaction.

If the transaction goes well, traders with high leverage will always make more money than traders with lower or no leverage.

However, when the transaction does not move in the expected direction, there are risks.

In the above example, if the USD/JPY rises to $121, Adam will lose $4,150, which is 41.5% of the total funds, and another trader will lose $415, which is only 4.15% of the total funds.

Learn how to trade Forex with OctaFX

How to trade with OctaFX’s leverage?

When using leverage to trade, you first need to determine the size of the leverage.

This is because the amount of leverage you use can determine your account balance.

A novice trader should use a lower leverage ratio than an experienced trader who understands market risks.

Brokers like OctaFX provide different leverage ratios for each asset class, mainly depending on the risk level of these assets.

For example, cryptocurrency is a highly volatile asset, and the leverage level set by the broker is lower than that of the less volatile foreign exchange.

In addition, when brokers expect major changes in the market, they adjust their leverage ratios to help traders protect their funds.

After determining the leverage you will use for trading, you need to analyze your trading goals to find the ideal entry position.

In leveraged trading, entering a position can be either buying (if you expect the target price to rise) or selling (if you expect the target price to fall).

You should start trading after thoroughly analyzing your trading objectives.

Find out more about OctaFX’s leverage

Tips for Leveraged Forex trading

Remember, like all forms of trading, leveraged trading also involves risks.

This means that you can make a lot of money and lose everything.

In order to reduce the risk, you need to do several things. First, only start trading after a thorough analysis.

This requires analysis of technical, fundamental and market sentiment.

Second, make sure that all your trades have protective stop losses.

Stop loss refers to the automatic closing of a position after a transaction loss reaches a certain amount.

This is the biggest risk a trader is willing to take on each transaction.

This stop loss helps traders reduce the risk of losing more funds than originally planned.

In most cases, it is recommended that the risk of each transaction does not exceed 5% of the total account balance.

Another way to protect the account is to use trailing stop loss, which is to follow the latest price to set a certain number of stop-loss, which is only triggered when the exchange rate changes in the favorable direction of the position.

It is an instruction set when entering the profit phase so that it is locked Up to your profit.

Third, avoid letting emotions affect your trading.

Amateur traders often make a mistake. After they close a losing trade, they usually open a reverse order without any analysis.

Another common mistake is that they will expand the stop-loss limit for losing trades, hoping that the trade will reverse.

In both cases, the result is often that the trader eventually loses more money.

Fourth, avoid greed when trading with leverage. Greed will cost you a lot of money.

For example, when your profit target is reached, you did not take profit in time but decided to let the transaction continue to make more profits.

Normally, the price of the trading target will reverse, and you may lose money as a result.

In fact, you can avoid similar situations by setting Take Profit, which is the opposite of Stop Loss.

When your profit target is reached, Take Profit will automatically close your order.

Another example of greed is when you make a profitable trade in the morning and then trade many times during the day.

You can avoid this mistake by setting yourself a daily transaction limit and sticking to it.

In general, leveraged trading is an ideal way for traders to obtain huge profits in the financial market, provided that it is operated properly.

If the operation is improper, it may bring disastrous consequences to traders.

Continuous learning, practice, and discipline can help you become a successful leveraged trader.

Go to OctaFX Official Website