Therefore, while a high leverage ratio can make you more profits, it also exposes you to more risks

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For example, if you have a $10,000 account and leverage of 50, it means that you can purchase securities worth $500,000. Assume that the EUR/JPY pair is trading at 120 and one standard pip is worth $8. One pip for five standard lots will be worth $40. After doing your analysis, you believe that the pair will fall and so, you short it. If the trade goes against you and moves to 121, you will lose 100 pips worth $4,000.


This represents 40% of the total account. If on the other hand, you palau business email list used the leverage of 5, you will have the buying power of $5,000. If the pair moves to 121, you will lose 100 pips worth $400. This will represent just 4% of the total account. If the pair had moved to 119, your first trade would have made you a 40% profit while the second one would make a 4% profit.


Therefore, while a high leverage ratio can make you more profits, it also exposes you to more risks. To be safe, because you don’t know the direction the price will move, you should use a low ratio. Most professional traders use a margin of less than 50. Lot sizes Lot sizing is another important risk management strategy you can use. It is based on a simple idea.