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Chapter 34, Part I. A Bit More About Leverage. Page 9

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Commander in Pips: Also be aware that some brokers make close trades at earlier level, for example, if usable margin drops to less than 20% of total equity. You must read a brokers trading terms before opening an account.

    And finally just single notification could be made about over leveraging. What happens in our example, if you have entered with 4 lots, instead of 1 (although 1 lot is too large for 5000 EUR deposit)? If market just moves for (25 pips – bid/ask spread) – you will blow out your account. Just imagine – only 25 pips and you will lose all of your money that you’ve accumulated during the long time you saved up to open the account. Here is a cost of over leveraging.

    - Margin and leverage is double-edged sword. They increase your financial power by allowing control of larger amounts of money. From the other side they proportionally increase your risk;

    - Study to control your assets on account. Be sure that you 100% understand how Balance, Equity margin change and what do they depend on;

    - Study with scrutiny broker’s agreement and understand how client’s positions are managed. You have to 100% understand how positions will be closed at margin call and what conditions of margin call are;

    - Some brokers increase margins for weekend days, as a rule 2 times. For example, if you have 1:40 leverage at week days – you will have just 1:20 at weekend – find out this issue with broker that you are trading with. If you are using 1:25 and they change to 1:20, you could get a margin call.

    Huh, I suppose that a standard lot will not exist for me for a considerable period of time.

    Commander in Pips: This is not worst decision, son.

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.
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