I keep seeing a lot of advertisements for forex brokers that offer amazing amounts of leverage, even to the astonishing level of 1000 : 1, yeap one thousand times your capital, with as little as $10 minimum deposit. http://100.tradersway.com/
Leverage is a great feature to add to your trading as it amplifies your profits, but it also amplifies your losses. Say you open an account with $2000 and 100:1 leverage which is amazingly high stil and a maximum drawdown of $1000, you put on a trade for 100,000 of usd/jpy at 117, it moves 0.50 yen against you and you are already down $427.35. Nearly half your risk capital has gone in a swing that could happen very easily in usd/jpy. Or two bad trades and your out!!! Hedge funds in the aggressive risk taking years pre 2008 would have had a max leverage of 10;1 nowadays its more around 5;1
There’s a lot of talk that brokers will have to cut leverage now. After the events last week on the CHF (Switzerland franc) seeing several brokers going under because of loss in client accounts means we can expect some more regulation – especially on high leverage margin trading. I think leverage 1000 : 1 is just too much for anyone but then that is just an easy way to get in new starters with no money!