Many people like to trade foreign currencies in the Forex market because they require the least amount of capital to start a trading day. Forex trades 24 hours a day during the week and offers great profit potential thanks to the leverage provided by forex brokers. Trading on the Forex market can be very volatile and an inexperienced investor can lose significant amounts. Can you trade Forex without leverage?
Forex is a global market that allows you to exchange one currency for another. If you’ve ever traveled to another country, you usually had to find an exchange office at the airport and then exchange the wallet money for the currency of the country you are visiting.
Forex trading lever
Leverage offers a high level of both reward and risk. Unfortunately, the benefits of leverage are rarely seen. Leverage allows the trader to take larger positions than he could with his own capital, but puts additional risk on investors who do not properly consider their role in the context of the overall trading strategy.
Best practices would indicate that investors should not risk more than 1% of their own money in a given transaction. While leverage can increase returns, less experienced investors should follow the 1% rule. Leverage can be recklessly used by undercapitalized investors, and in no case is it more widespread than the currency market, where investors can get a leverage of 50 to 400 times the amount invested.
Forex trading without leverage
The main disadvantage of trading without leverage on Forex is that for most traders it is simply not available. Forex trading without leverage means that changes in the price of assets directly affect the investor’s result. The average monthly return an entrepreneur can generate is 10%. But in fact the return is around 3 to 5% per month.
However, this figure already includes marginal trade. Without Forex leverage, you would probably earn 0.3 to 0.5% a month. This may be enough for some Forex investors – but maybe not for most. The need for significant trading capital is the biggest drawback to leverage trading. On the other hand, currency trading without leverage provides less risk exposure.
This does not mean, however, that transactions without leverage do not involve any risk. Let’s move to the example of “no-leverage trading”. Let’s say you deposit $ 10,000 and you make a monthly refund of 5%. You only get $ 500 a month, before tax. You can probably earn the same money by working from 9 to 5, without risking your own capital.
To use or not to use
Unfortunately, there is no final answer – it depends on the situation. You need to consider your trading strategy, your financial goals, available capital and how much you are willing to lose. Like any financial market, the Forex market is generally risky. The higher the level of leverage, the more risky trading is.
So consider trading with the least possible leverage to ultimately get the desired profit. Conversely, remember that the more leverage you use to trade in the Forex market, the more profit you can potentially achieve. In most cases, a novice investor should consider using leverage in the range of 1: 5 to 1: 100. The table below illustrates the importance of trading with the right leverage. Displays 10 consecutive lose transactions in a row when using high or low leverage.