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3000:1$1From 0.0 PipsRead the full review
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400:1$250From 0.1 PipsRead the full review

What is leverage in trading?

Leverage in Forex trading or in other financial services where  trading other financial instruments like CFDs or stocks is available,  means to have more capital – money – to utilize. In using a bigger leverage, traders have more capital at hand to invest. Stock traders call this trading on margin. Higher leverage in trading provides the opportunity to gain bigger profits. On the other hand, it also increases the risk of larger losses. Leverage increases traders’ buying and selling ability in the Foreign Exchange or other market by providing virtual, nonexistent capital. This money is borrowed from the broker that offers leverage. Traders should notice that they enter high risk territory when they trade on margin.

As an example, when a trader uses a 100:1 leverage on his Forex account, he will be able to control 100 times the amount of money than he has in his account. If the trader in our example has a standard trading account with a balance of $1,000, he would be able to open a trade worth $100,000 and trade Forex, CFDs or other instruments. With this amount of exposure their account can grow or shrink much faster than without the extra margin.

What are the risks of a bigger leverage?

In Forex trading the risks of using leverage are quite simple: the higher the leverage the greater the risk for losing substantial amounts of money. On the flip side, this also means that higher leverage can be translated into: the higher the leverage the greater the chances for bigger profits.

When it comes to leverage it all depends on how much risk a trader is willing to take. Let’s go back to our previous example where a Forex trader has an account balance of $1,000 and his leverage is set to 100:1. The trader could lose their $1,000 in a matter of minutes if they initiate a trade worth $100,000.

    What are the advantages of using leverage?

    As dangerous as it can be to use leverage in trading the markets it can also be exciting and very profitable. The ability to control more money than having available in one’s account means to be able to make bigger profits on winning trades. When a trade moves in the right direction all profits are multiplied by the factor of leverage a trader chooses. Another benefit is that these bigger profits can be gained without having to invest all that money. Margin trading allows for lower deposits and higher gains. With little investment and high leverage a trader can trade, for example, not just 1000 unit lot and earn $0.10 for each pip, but go for 10 000 unit lot, where he will earn $1 dollar per pip.

    Examples of trading with leverage

    Traders can select from many Forex brokers that offer different leverage levels. Most brokers also give choice between various trading account options, platforms (MT4, MT5 or cTrader) and leverage settings. Brokers that are no market makers but instead offer a STP (straight-through-processing) or E.C.N. (electronic communications network) model offer an excellent trading environment for retail traders. Costs or commissions on Forex or CFD trading are usually low and there’s many Forex brokers that offer good leverage on top as well. IC Markets (read IC Markets Review)  is one of those Forex brokers that offer a true ECN trading environment and a max leverage of 500:1. They are licensed and regulated by ASIC (Australian Securities and Investments Commission) and attract clients from all over the globe. Let’s say we hold a standard account with a regulated broker like IC Markets, deposit $1,000 to get started and trade on the popular MT4 trading platform. We select a medium leverage of 200:1 and trade the popular EURUSD pair. If we just invest $100 on a short position we would have an exposure of $20,000. If the price moves against us we could lose our $100 as well as our remaining balance very quickly. If the price moves in our favor we would gain 200 times the profit than without a 200:1 leverage.      

    Highest leverage offered by brokers

    One of the highest leverage offered by Forex brokers is 3000:1. The internationally renowned Forex broker FBS offers this level of leverage on some of their available account types– the highest leverage on the market! With this type of leverage is important that you are able to place stop loss orders in order to mitigate the risk. Most o the good broker like Avatrade, Etoro, fxtm, Exness and fxpro offer stop loss availability. It is always a good idea to check if this option is available before you click the open account button. If your risk tolerance is low, is better to use a demo account first or check if the broker you want to use offer a deposit bonus to play with.

    Other popular Forex brokers like Alpari offer everage levels of up to 1000:1. Well recognized, internationally operating brokers like IC Markets, Vantage FX, Pepperstone, Admiral Markets or XM have  leverage levels of up to 500:1 on offer. Other top brokers that offer leverage of up to 400:1 include AxiTrader, ThinkMarkets and easyMarkets.

    It is important to consider where a broker is licensed and what type of leverage is offering. For example a broker licensed in Belize offering a leverage of 3000:1 is probably too risky and you should stay away from them.

    High leverage ECN brokers

    Our review shows that many of the top Forex brokers offer leverage of either 500:1 or at least 400:1 and a maximum of 3000:1. Many of these brokers are ECN brokers. These brokers allow traders to get access to the actual pricing of instruments as set by the banks and liquidity providers rather than relying on the broker to set the price. This means that top brokers like IC Markets, AxiTrader, FBS or Vantage FX offer good leverage and execution. They are no market makers but offer straight-through-processing of trades. This means that it is not the broker who sets the price but it is the market itself.

    Limitations of leverage in countries due to regulation

    Brokers based in the UK or anywhere in Europe have been limited by ESMA (European Securities and Markets Authority) to offer a maximum leverage of only 30:1. The 30:1 leverage is only available for major currency pairs. Non-major Forex pairs, gold, and major stock indices have a leverage of 20:1 available. All these limits have been applied to retail clients and are for all UK/Europe based brokers. Japan has a maximum leverage cap of 25:1. Singapore and the USA have a leverage limit of 50:1.

    High leverage for UK and European retail traders

    Traders that are based in the UK or anywhere in Europe are free to choose a broker that has no leverage cap of 30:1. International Forex brokers based outside the UK/Europe accept clients from European countries. These brokers typically offer popular trading platforms like MetaTrader4 and 5, cTrader or their own proprietary trading platform. Many top FX brokers are headquartered in Australia or Cyprus. Most of them are licensed and regulated with either ASIC, CySEC (Cyprus Securities and Exchange Commission) or the FSCA (Financial Sector Conduct Authority) of South Africa. These are strong regulators with very strict rules similar to their European counterparts. Many sophisticated traders have chosen brokers that are based outside of Europe and the UK even if they are not regulated by the FCA (Financial Conduct Authority) of the UK or other European regulators.