DOES MONEY MANAGEMENT AND LEVERAGE MATTER?
Leverage is one of the most important tools for forex trading. If you have proper knowledge about leverage, small amounts of it can work for you and help you expand your win rate if you are already trading effectively.
When using leverage, money management can only minimize risks up to a certain extent. You need to do proper analysis for trading or else there’s no way to avoid all the risks involved in practical trades. The same applies to trading within a prop firm. There needs to be a balance of trading skills and risk management. When a trader is proving to find accurate entries with a good profit factor then leverage can assist with increasing the profit amount.
Build your trading plan
A strict trading plan can help make your trading easier by acting as your decision-making tool. It can also help you maintain discipline in the volatile forex market. The purpose of this plan is to answer important questions, such as what, when, why, and how much to trade in any given scenario so that you are never left unstuck. Your forex trading plan needs to be personal to you. It’s no good copying someone else’s plan because that person will very likely have different goals, attitudes, and trading biases. They will also almost certainly have a different amount of time to dedicate to trading which will play a big factor in how you will trade.
Impatient trading with leverage
Money management is vital for every trader, and one way to make a return in trading is through leverage. However, this can become a problem if you don’t know how much risk you’re willing to take on or are not disciplined enough. Higher risks generally translate into higher returns, but some consequences could lead to disaster in either scenario. In prop trading terms that could mean a trader wants to hit their profit target very quickly or get that next pay-out as fast as they can.
Popular leverage in trading
Forex in general has always been an attractive investment option because it provides traders with some of the highest levels of available leverage when compared to other markets. It’s also important for traders to understand what leverage means to them, how it works, and why they need it if they want to be successful at forex trading.
In Forex, generally popular leverage is 1:100. For every pound that’s in your account, you can trade a hundred times that in terms of value. It seems like market makers offer such high leverages because they know that the higher the amount of risk a trader has, the greater their chance to lose it all – but then again, they wouldn’t give out so much money without any conditions attached!
Leverage within a prop firm
In the prop firm industry, it is also seen as a con for prop firms to only offer low leverage. Many popular traders have actively promoted firms due to the fact they offer high leverage meaning traders can aim to make quicker and larger pay-outs over long term solid trading performance. Which would you prefer, short term fast profits, with account termination after 1 month? Or consistent earnings over many years and no-account termination? We are not saying aggressive or high-risk traders necessarily want an account termination, but it can be difficult to maintain longevity when using large amounts of leverage.
What leverage is best?
After many years of studying and testing, we found that higher leverage usually causes the most problems when it comes to trading properly with consistency. Here at FTUK, we provide traders with either 1:10 on our low-risk programs or 1:30 on the aggressive style. We have heard from many traders that this is very low and, if a trader needs more leverage, then they are usually doing something wrong in their trading or are expecting things to happen faster. The lower the leverage, the longer it may take to reach a certain % profit goal, but the more realistic the journey will be.