Broker to Trading

When trading Forex, the trader is normally offered leverage. When trading Forex, the trader will trade a Forex pair. The Forex pair moves in values called pips. The value of each pip move is determined by the size of the order. The order size is given in lots, typically standard Forex lots, which can be traded in sizes greater than or less than a standard lot and in multiples of the chosen lot size. The pip move in effect determines the rate at which the trader's account will be augmented or depleted for each move the Forex pair makes in pips.

Increasing leverage allows the trader to trade an order size with less capital used in margin for the order. However this means that more of the account capital is exposed to adverse moves in the Forex pair (against the traded position). At the same time the value of the move can be higher. This is why increasing leverage increases risk: it increases the exposure of the capital of the account to adverse moves.

Forex moves in complex ways, tracing out patterns of retracements. These retracements can send the pair against the traded position, even if it works out in the end (which it may not). Thus the account can be depleted. The Forex market can sometimes move fast as well in unpredictable directions (for example because of news released into the market). As leverage can allow the trader to trade larger position sizes with the same account size, then accounts may rapidly be depleted.

The trader can use a stop-loss (and should), but with multiple positions it is possible for the account to trigger a stop-out level set for the account. With brokers which do not offer negative balance protection, it is possible for losses to exceed the account value. Thus leverage in Forex should be chosen with care and not necessarily because it allows for larger pip sizes to be traded in a smaller account size.

There is a trade off and balance in Forex trading between the size of the account and the size of the position which can be taken (and the total number of open positions). If the trader gets it right, trading can be a more sustainable experience, rather than otherwise. The trader can trade with smaller lots sizes, for example micro lots, or if the broker offers a cent account, then in lot sizes smaller than standard micro lots, rather than increasing leverage.