One of the reasons Forex market is so popular among traders compared to other financial market is the possibility to use high leverage. This instrument can increase profit by several times, and can also lead to a big loss. Many traders, particularly the beginners, ask whether they should use Forex leverage and which level of leverage they should choose for safe, but at the same time profitable trading in the Forex market. Traders Union experts have not found a definitive answer to this question in open sources. In order to obtain unbiased data, the team of TU analysts conducted a research to find out whether successful traders use trading leverage and what they believe is the best level of trading leverage. This research will help traders, particularly the beginners, to borrow the experience of successful colleagues and use it in their trading.
The objective of the research is to find a trustworthy and unbiased answer to the question of the research. In order to fulfill the task, the team of TU analysts surveyed 2,600 successful traders, trading Forex via the brokers from the Top 10 of the Traders Union rating. As a result of the survey, TU experts obtained unbiased and trustworthy data based on the experience of successful traders and were able to determine whether it is worth using leverage in the Forex market.
TU research also provides answers to the following questions:
What is Forex leverage?
What levels of Forex leverage are most frequently offered by the brokers in the Forex market?
How does the use of leverage impact the possible profit or loss of a trader?
The results of the research are based on trustworthy and unbiased data. Therefore, the traders from all across the world will be able to apply them when building their trading strategies in the Forex market.
Forex is a global financial market for exchanging currencies. The participants of Forex trading include central banks of different countries, companies, top international businesses, commercial banks and private traders.
Forex broker is a financial services company performing the function of an intermediary between the buyer and the seller of currency in the Forex market.
Trade deposit means the funds deposited by a trader to his/her account with a Forex broker with the purpose of performing trading transactions.
Volatility is a term used to describe fluctuations of trading prices within a specified period of time. It is believed that the higher the range of price fluctuations, the higher the volatility.
Liquidity is an economic term denoting the capacity of the assets to be sold at the price that is as close to the market price as possible with minimum possible expenses.
Slippage is the difference between the actual price of the order execution and the price set by the trader when the order is opened.
Spread is the difference between the best buy price and the best sell price in currency exchange.
Trading strategy is a set of rules and algorithms used for making decisions when trading in the Forex market. The trading strategies are divided into those based on technical or fundamental analyses, and there are also combined trading strategies.
Gap is a situation in the financial market, when the price of an asset moves sharply, creating the gap, after the previous timeframe closes and before opening of the one that follows. On a candle chart, the gap is seen as a break between two candles. Gap occurs, when the price rises or falls sharply.
Leverage means borrowed funds provided by the broker, which allow traders to manage substantial amounts in the market, while having only a small amount of own capital used to cover the margin requirements.
Margin is the amount of funds on the trader’s deposit required to keep the positions open in the market and is a collateral for trading with leverage.
Having reviewed the opinions on trading with leverage in the Forex market available in the open sources (babypips.com, ifcmarkets.com, forex.com, tokenist.com, independentinvestor.com, investopedia.com and others), the team of TU experts established that there is no agreement of opinion on the use of leverage in the Forex market and on its optimal value. Some experts are convinced that it is worth using high leverage in order to earn high profit. Others claim that trading with high leverage carries great and unjustified risks, and, therefore, traders should choose low leverage. There are also traders with large capital who prefer not to use leverage at all.
TU experts have tasked themselves with finding out which opinion on leverage is shared by successful traders, trading in the Forex market with the brokers from the Top 10 list of the Traders Union rating and which level of leverage they believe to be the best.
In the beginning of their research, Traders Union analysts learned what leverage is and what levels of leverage are most frequently offered by the brokers for trading in the Forex market.
Leverage allows traders to use borrowed funds to buy an investment instrument. In the case of Forex trading, borrowed funds are provided by the broker. Availability of high leverage allows traders to manage large amounts of funds in the market, while having small own capital, used to cover the margin requirements. For example, in order to trade one standard lot in the Forex market, which is 100,000 units of base currency, without the use of leverage, a trader needs to deposit an amount equivalent to 100,000 units of base currency. In case leverage 1:100 is used, a deposit in the amount of 1,000 units of base currency will be enough for opening a trade.
In order to calculate the size of leverage, you need to divide the total amount of the trade by the required margin amount.
Leverage = Total value of opened trade / Margin required
Trading with leverage is also often called margin trading. Margin trading does not always carry high risks, as you can achieve their substantial reduction with the right capital management. For this, you need to consider the percentage of own capital used in trade, i.e. the actual leverage, not leverage offered by the broker.
In order to calculate the actual leverage, you need to divide total value of open trades by your own trading capital.
Actual leverage = Total value of opened trades / Own trading equity
The majority of traders refrain from using their entire equity in trading, which is why leverage provided by the broker often differs from actual leverage used by the trader.
Highest leverage most frequently offered by Forex brokers are available in the table below:
| Trading leverage | Required margin (percentage) |
|---|---|
1:1000 |
0.10% |
1:500 |
0.20% |
1:400 |
0.25% |
1:200 |
0.50% |
1:100 |
1.00% |
1:50 |
2.00% |
1:20 |
5% |
👍 The benefits of using leverage are as follows:
•Substantial increase of profitability through a possibility of opening large positions.
•Opening of large positions without the need to make a large deposit.
•High leverage allows for using a larger number of trading instruments or different trading strategies, as the margin that is maintained will be lower the higher the leverage.
•Use of leverage is free for traders.
👎 The drawbacks of using leverage are as follows:
•Possible loss of the entire deposit if the price moves in the opposite direction from the opened position.
•Margin requirements can force a trader to increase their own equity or close a position at an unsuitable moment.
•It is impossible to set Stop Loss at an appropriate level when using high leverage.
•Transaction expenses can have a negative impact on the trader’s deposit if he/she uses high leverage.
As we mentioned above, the biggest advantage of leverage is also its biggest drawback, because the higher the actual leverage the more impact it has on the final result of the transaction, whether it is a profit or a loss. For example, based on average daily volatility of currency pairs, which reaches 1% a day, a conclusion can be drawn that a trader can open a trade worth 1 standard lot and double his/her deposit within one day, having 1,000 units of base currency and using leverage 1:100. If the situation is unfavorable for a trader, the entire deposit can be lost. At the same time, having 1,000 units of base currency and not using leverage, a trader can open a trade for an amount of no more than 0.01 lot, although the loss will also be limited to this amount. Therefore, leverage has an equal impact on possible profit and loss, proportionally increasing or reducing these values depending on the level of leverage that is being used.
Note:
Traders Union experts note that when choosing actual trading leverage, a trader needs to take into consideration such factors as possible gaps, spread, and a possibility that the broker can change maximum leverage at specific moments of the trading session. Also noteworthy, when a trader uses Forex leverage, the broker’s commissions and swaps change proportionally to trading leverage that is being used and can considerably impact the trade deposit.
To answer the question of whether it is worth using leverage and what the best level of it is, the team of TU analysts surveyed 2,600 successful traders from different parts of the world trading with the brokers from the Top 10 list of the Traders Union rating. All respondents have shown profitable trading for at least one year. The survey was conducted using the CAWI (Computer Assisted Web Interviewing) method. The non-sampling error of the survey with a confidence level of 95% is no more than 2%.
6.1. Surveyed traders by gender:
73% men;
27% women.
Picture 6.1. Respondents by gender, %
6.2. There are the following age groups in the sample:
37% of the respondents are aged 18-30;
41% — aged 30-45;
19% — aged 45-60;
3% of the respondents are older than 60.
Picture 6.2. Respondents by age, %
6.3. In terms of their trading experience, the composition of the respondents was as follows:
4% of the respondents have been trading on Forex for over 10 years;
26% — more than 5 years;
43% — from 3 to 5 years;
27% — from 1 to 3 years.
Picture 6.3. Respondents by Forex trading experience, %
6.4. In terms of the average monthly deposit growth for the last 6 months the results of the successful traders are as follows:
5% of the respondents have shown a monthly capital increase of up to 15%;
14% of traders — up to 10%;
31% of traders — up to 5%;
34% of traders — up to 3%;
19% — up to 1%.
Picture 6.4. Average monthly return rate of successful traders, %
6.5. The responses of the respondents regarding their trading strategies were as follows:
48% use long-term strategies;
52% — short-term strategies.
Picture 6.5. The ratio of use of long-term and short-term trading strategies, %
6.6. The responses of the traders to the question: “Do you use leverage for trading in the Forex market” were as follows:
Yes, I use leverage — 94%;
No, I don’t use leverage — 6%.
| Use of Forex leverage | Votes | % |
|---|---|---|
Yes, I use leverage |
2444 |
94% |
No, I don’t use leverage |
156 |
6% |
Total |
2600 |
100% |
Table 6.1. Distribution of traders’ answers on their use of leverage in the Forex market
Picture 6.6. Use of leverage, %
6.7. Also, the respondents who replied that they used leverage were asked about the best size of the actual leverage. The surveyed traders responded as follows:
73 (3%) respondents said that the best level of leverage is 1:20.
293 (12%) stated they believed actual leverage of 1:50 is the best.
856 (35%) of the surveyed traders use leverage of 1:100.
415 (17%) prefer leverage 1:200.
342 (14%) respondents said they believed leverage 1:400 is optimal.
441 (18%) believe leverage at the level of 1:500 is the best.
23 (1%) respondents stated leverage over 1:500 is optimal for them
| Trading leverage | Votes | % |
|---|---|---|
1:20 |
73 |
3% |
1:50 |
293 |
12% |
1:100 |
856 |
35% |
1:200 |
415 |
17% |
1:400 |
342 |
14% |
1:500 |
441 |
18% |
Over 1:500 |
24 |
1% |
Total |
2444 |
100% |
Table 6.2. Distribution of traders’ answers to the question about the size of the actual leverage used for trading in the Forex market
Picture 6.7. Actually used trading leverage, %
(*) Survey criteria:
Survey audience: Forex traders of the TU community aged 18 and older trading with the brokers from the TOP 10 list of the Traders Union rating.
The sample is representative in terms of age, gender and Forex trading experience.
Sample number: 2,600 respondents.
Survey method: CAWI (Computer Assisted Web Interviewing).
Non-sampling error of the study with a confidence level 0.95: no more than 2%.
Period of survey July 8-12, 2023.
Based on the data obtained in the course of the research, TU experts have reached the following conclusions:
The vast majority of successful traders surveyed by TU analysts use leverage when trading in the Forex market, specifically 94% of the respondents.
The traders who use short-term trading strategies use trading leverage over 1:100 more often than traders, who prefer long-term trading strategies.
Experienced traders use high leverage much more frequently than their less experienced colleagues.
The results obtained in the course of the research do not depend on gender, trading experience and age of the traders. The majority of men and women, regardless of their age and trading experience, agree that the use of leverage is necessary in the Forex market.
For more detailed information on margin trading, download the full version of the research conducted by our team.
Forex market has many advantages over other financial markets and the possibility of using high leverage is one of them. This instrument is extremely important for building a profitable trading strategy. In order to achieve profitability to margin trading in the Forex market, first of all, you need to determine the level of trading leverage that is suitable for your trading strategy. For this, the following factors need to be assessed: size of the deposit, applied risk management, and the size of the position that is being opened. The level of trading leverage that meets all capital management criteria will be the right one.
Follow these rules and the important instrument of the Forex market, such as trading leverage will help you substantially increase profitability of your trading.
Antony Robertson
Traders Union’s analyst trader
Background info.
TU research is a result of many days of hard work by our experts, who collected, processed and analyzed a huge amount of information and opinions on margin trading in the Forex market. Our data are also largely based on the success stories of real traders, who work with TU, which confirms their objectivity and impartiality.
Our research is of a charitable nature and was created at the expense of Traders Union with the objective of increasing financial literacy of Internet users and increasing the percentage of successful transactions among traders. If you enjoyed our research and found it useful, please share it with others.
Bruce Powers is an expert trader and technical analyst with over 20 years of experience in Forex, commodities, ETFs, cryptocurrencies and other assets. He is an active trader, technical and fundamental analyst, media commentator, educator and a writer. As an author for Traders Union, he contributes his deep analytical skills, expertise and understanding of the global economy and financial markets to provide market analysis and insights. Powers is also a frequent guest on business TV news shows.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.
