Choosing From High Leverage Forex Brokers
The recent CFTC ruling paved the way for opening up more leveraged Forex trading platforms to all participants in the market. However, the new rules that were approved by the CFTC did not directly apply to Mt. Gox. Mt. Gox is still operating as a trading platform for its customers who have chosen to operate in foreign currency rather than US dollars, but because of the popularity and success of the business, and due to the large number of leveraged trading platforms being offered by various brokerages, there has been a trend of increased leverage being offered to new members of the market.
In addition to the new CFTC rule allowing high leverage for brokers to offer trading accounts to all participants in the market, there are other equally important changes that should be made to allow traders to use leverage to their advantage. One of these changes is to limit the maximum percentage of total trading capital that can be leveraged on any one trade. Many times traders will open trading accounts with a very large initial margin in order to allow them to spend more time studying the market before making a decision to trade actively. Limiting the maximum leverage available on each trade will prevent traders from taking advantage of their increased capital.
Another change that should be made to stop abuses of high leverage is to require all forex brokers that provide trading services to require a minimum deposit to open an account. While this may seem like an unnecessary deterrent, if the purpose of the broker is to make money off of fees paid to it by its customers, then this policy will do little to protect the customer. Even if the required minimum deposit to open an account is high, most seasoned traders know that they will not be required to make a hefty deposit in order to gain access to the largest tool available to the trader: the forex brokers themselves. As time passes, when a trader does decide to move up to a higher leveraged account, they will most likely be doing so because of the benefits afforded them by their new position.
Some traders are turning away from high leverage forex brokers because they are experiencing difficulty making trades on some of their primary pairs. One of the primary pairs that has seen a sharp increase in daily trading volume over the past few years has been the EUR/USD. However, many traders have been unable to make consistent profits on this pair simply due to wide spread spreads. Wide spreads is a problem simply because it reduces the amount of leverage that a trader can apply. Leverage allows traders who have large amounts of capital to take large risks that they would not otherwise be able to afford. By placing a high level of leverage on a particular pair, a trader is able to take a larger risk and make a bigger profit on the trade; however, the larger spread limits that result increases the amount of leverage that can be applied.
One of the easiest ways to avoid abuse of high leverage ratios is for brokerage houses to implement strict guidelines for dealing with accounts. Many brokers will either require that a trader have an account with them or at the very least maintain extremely low leverage ratios. Trading with very low leverage ratios is the best way for most beginners to get started in the Forex market. However, as a trader gets better at trading, he may feel that he is at a disadvantage because he does not have the leverage that he did when he first started. To combat this issue, some brokers will offer incentive programs that will allow traders to gain rewards for having a specific level of leverage.
To protect oneself from unscrupulous high leverage brokers, it is necessary for investors to find out as much information as possible about each broker and their platform before they make a deposit. The Internet is filled with information about all of the different Forex brokers as well as the different trading platforms that they operate on. By comparing each of the information provided, a trader will be able to determine which one is the right broker for them. In many cases, the cheapest software platforms will offer the same features and benefits as some of the more expensive programs. The only difference will be the price.
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