Posted by forex at 4:17 AM
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1. Decide how much money to use to trade FOREX. Account minimums vary by broker and account type. For example, a broker may require a $2,000 minimum for a standard account, and a $200 minimum for a mini account.
2. Determine how much of your capital you are willing to risk on one trade. It is important to divide your trading capital into parts, so that you don't blow out your account on a few unsuccessful trades. The less you risk as a percentage of your total account, the lower your risk of ruin. You must decide how much to risk based on your own risk tolerance and account size.
3. Review your decisions on previous steps to determine how much leverage you need. For example, assume you have $10,000 to invest, and you are willing to risk 10 percent of your account per trade. Since a standard lot in FOREX represents $100,000 of currency, and you are willing to risk $1,000 per trade, you need $100,000/$1,000 or 100:1 leverage.
4. Evaluate the benefits and risks associated with leverage. Leverage is essentially a tool for increasing potential gains and losses on an investment. The higher the leverage you use, the less you have to invest to open a position. However, the gains and losses will be larger as a percentage of your initial investment, and there is a much higher risk of being taken out of the trade if the market moves against you.