When the prospect of making a big profit without using too much of your own money will be tempting. Keep in mind that excessively high levels of leverage can cause you to lose more of your money. Some prevention tips used by professional traders can help reduce the risk of derivatives when using leverage in forex trading.
Cover Your Losses: If you are hoping to take a big advantage someday, you must first learn how to keep your losses small. Cover your losses into limits that you can manage before your account gets out of that limit and drastically erodes your equity.
Use a Strategic Stop: Placing strategic stops is very important in the hours around the forex market, where you can sleep and wake up the next day to know that your position is affected by the movement of several hundred pips. Stops can be used not only to ensure that it limits losses, but also to protect your profits.
Do not Skip Your Head: The biggest trade loss happens because naughty traders get stuck on the “weapons” used and keep adding to losing positions until they become huge, but they have to be released as they can be a major disaster in defeat.
Although the trader’s view or position may eventually be true, but it is generally too late to reverse the situation. It’s much better to reduce your losses and keep your account alive for trading on another day, rather than allowing it and hoping for a miracle that is unlikely to reverse big losses.
Use the Leverage that Meets Your Comfort Level: Using 1:50 leverage means a 2% adverse move can remove all your equity or margin. If you are a relatively cautious investor or trader, use a lower level of leverage where you feel comfortable, maybe 1: 5 or 1:10.
Although high levels of leverage seem to be easier for forex trading and are able to increase profits and risks, using some precautions used by professional traders can help reduce this risk.