8 Forex Risk Management Strategies for Beginners

Understanding leverage

When trading currency price changes with CFDs, you are trading with leverage. This allows you to benefit from full exposure to the market by tying only a small part of your capital, called “hedging”.

While there are benefits to using leverage, there are also potential risks, such as the ability to amplify losses.

Let’s say you decide to trade GBP / USD via CFD and the pair is quoted at $ 1.22485, with a buy price of $ 1.22490 and a sell price of 1.22480. You think the pound will appreciate against the dollar, so you decide to buy a GBP / USD mini contract at $ 1.22490.

In this specific case, buying a mini CFD contract on GBP / USD currency is equivalent to exchanging £ 10,000 for $ 12,249. You decide to buy three CFDs, resulting in a total position of $ 36,747 (£ 30,000). However, as you are trading with leverage, your required capital will be 3.33% or $ 1223.67 (£ 990).

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