As a beginner forex trader, it might be difficult to select the best leverage for forex and you probably wonder if 1:100 is better than a ratio of 1:50 leverage or if you should go for a safer option.
There is no one-answer-fits-all here and it depends on your current strategy.
Another important factor is how well you can manage risk and what type of risk tolerance you have as a person.
This and much more will be discussed in this in-depth guide on selecting a good multiplier ratio for forex.
Key takeaway
In my experience, the best leverage ratio for forex trading is between 1:20 and 1:200 which will strike a balance between risk and reward depending on your experience and trading strategy.
As a beginner forex trader, you must understand how leverage trading works to be able to control the extra buying power.
Here are three examples of different ratios for forex to give you an idea of what to expect in terms of risk, profitability, and what trader is best suited for each ratio.
1:20
1:100
1:200
When it comes to selecting margin ratio for your trading strategy you need to take into consideration a couple of factors.
These include:
Take a look at the forex strategy you will use and decide whether it requires a high or low ratio.
Then, find out the average volatility of your forex market using a volatility indicator, I would recommend using ATR (Average True Range).
Lastly, examine yourself to see how much risk you are willing to take on while at the same time staying within the limit of how much risk your strategy allows.
Simply because you can handle risks doesn’t mean that you should over-leverage when trading forex.
As a rule of thumb, trading with leverage is not gambling and should be treated accordingly.
There are plenty of high leverage brokers for forex that allows you to change the default ratio in your account.
Forex.com is a good example of a broker that lets you select your margin ratio.
To change the ratio on Forex.com you need to fill out a Margin Change Request.
Here you simply fill in the details and the new margin requirement that you wish to use.
This is a very ethical way where the traders themselves can choose how much buying power to use in the beginning.
Some brokers, such as IG markets do not allow you to lower or increase the leverage.
In our guide on how you can switch leverage on Meta Trader 4 you can read more on how to change the leverage on this trading platform.
Other platforms that let you choose your preferred multiplier are:
These are all recognized brokers with a top reputation in the forex industry.
Read this Reddit thread where they recommend Pepperstone as a top broker.
Here is a list of things to consider for those of you who are going to use credit in forex:
When choosing the perfect leverage ratio for forex, there is no one-size-fits-all answer and it boils down to your personal experience trading the forex markets, your risk tolerance, and your trading strategy.
In this guide, I explain how time in the market plays an important role when selecting ratio and how a short-term strategy, also called scalping, rewards a higher multiplier.
On the contrary, traders who stay longer in the market should lower the ratio to combat the increased risk.
I’ve found that a ratio between 1:20 and 1:200 gives the most optimal balance between risk and reward.
However, you must tailor the ratio to your specific circumstances.
Avatrade, Exness, and Pepperstone are three brokers mentioned in the article that let you change the leverage ratio in your Forex account.
This is beneficial for each trader, especially for beginners who are new and trying to find out what works for them.
