Here is a another typical trading myth: high leverage is bad for you! You see this idea in every futures/forex forums over and over again.

This is of course total nonsense and here is why.

Each time you open a 100 to 1 (or more) leverage position in a forex mini-account, your friendly forex dealer is simply saying this : "Hey Mr. Trader, just put $100 in your account plus cost of spread and I will let own $10,000 worth of currency, and if the market moves just 1% in your favor you make 100% profit on your margin money, less cost of spread and a possible small interest!"

This "high-leverage-is-bad" myth is based on a simple confusion : most traders, newbies (and some pros alike!) assume that leverage means your total trading balance divided by the value of your position.

Your trading balance has of course NOTHING to do with leverage!

It does not matter if your trading balance is $1,000,000 or $100, if you open a position and you only need $50 to own/control $10,000 worth of currency then you are trading with a 200:1 leverage, period.

So high or low leverage, it does not matter. HOWEVER, what is really, really important is the percentage allocated to each trade. If you open a forex position and you need $5000 margin money and that margin money represents 100% of your trading balance then "Houston we've got a problem" indeed, no doubts about that.

In fact, if a trader has an excellent forex trading system, then the optimal course of action is to choose the highest leverage possible (400:1), to allow for a fast compounding of profits.

PS: this thread is NOT an invitation to trade with higher/lower leverage, as always trade at your own risk.

This is of course total nonsense and here is why.

Each time you open a 100 to 1 (or more) leverage position in a forex mini-account, your friendly forex dealer is simply saying this : "Hey Mr. Trader, just put $100 in your account plus cost of spread and I will let own $10,000 worth of currency, and if the market moves just 1% in your favor you make 100% profit on your margin money, less cost of spread and a possible small interest!"

This "high-leverage-is-bad" myth is based on a simple confusion : most traders, newbies (and some pros alike!) assume that leverage means your total trading balance divided by the value of your position.

Your trading balance has of course NOTHING to do with leverage!

It does not matter if your trading balance is $1,000,000 or $100, if you open a position and you only need $50 to own/control $10,000 worth of currency then you are trading with a 200:1 leverage, period.

So high or low leverage, it does not matter. HOWEVER, what is really, really important is the percentage allocated to each trade. If you open a forex position and you need $5000 margin money and that margin money represents 100% of your trading balance then "Houston we've got a problem" indeed, no doubts about that.

In fact, if a trader has an excellent forex trading system, then the optimal course of action is to choose the highest leverage possible (400:1), to allow for a fast compounding of profits.

PS: this thread is NOT an invitation to trade with higher/lower leverage, as always trade at your own risk.