A high leverage trading strategy is slightly different from a standard trading strategy and in this guide, I will break down the most fundamental parts of how trading with leverage on a high ratio.
Whether you are a complete beginner investor or an experienced scalper, this tutorial will benefit you if you consider trading high leverage in crypto, forex, or stocks.
When using borrowed funds, especially with up to 100x leverage ratios, it is essential to consider both your upside and downside while trading to maximize your output and minimize the damage of a large position in the event of a loss.
Personally, strategy number 8 has generated the most profit in my account over the years and I recommend you read this one if you know how to do proper risk management and are only lacking an aggressive strategy to increase winners.
When you look at spot trading vs leverage trading there is a difference in the size of the positions and today we will go through the most important factors to consider when using a high ratio.
How to trade with high leverage?
This is an interesting topic that most new traders have stumbled upon some time and wondered, what is high margin in trading?
It is a way of speculating the markets (forex, crypto, and stocks) with high ratios of up to 100x or even 500x margin to increase position sizes to increase returns.
Most beginner investors use high ratios to compensate for a small account size.
This is understandable since it is very difficult, nearly impossible, to make a living with an account that is smaller than a few thousand dollars or euros.
This is why traders leveraged up their position sizes to be able to trade with the same size as professionals.
This of course requires proper planning and preparation and without some decent training under the belt, it is going to be very difficult to succeed no matter how big your position sizes are.
So, the recipe for success starts with a couple of great strategies so in this next chapter I will share with you my favorite strategies I have learned through the years.
High leverage in long-term investing should never be attempted since the fees are too high and the overall success rate of your investments will fall to near 0.
Top 10 high leverage trading strategies
Now, a good strategy is something you want to implement slowly and methodically, you don’t want to rush things down and chase profits without testing out the waters.
Should you be a complete beginner, I highly recommend you try these strategies out on a demo account where you can trade completely without risking your capital.
Remember to balance your trading approach with both risk management strategies and aggressive planning for the best results. As they say in sports, the best offense is a great defense. This holds true in trading and investing as well.
The reason why brokers offer high leverage to beginners is of course to make more money but if you are smart you can take home larger gains than the broker itself.
It’s common knowledge that margin affects profits, it’s your job as a trader to use it to your advantage.
1. Focus on trending markets
The first strategy I want to talk about is how you pick your market.
When using a ratio of up to 100x or more, you need to focus on a market that is currently in a strong positive or negative trend.
Why is this you may ask? Can’t I trade whichever market environment I want and use my standard setups?
Yes, you can. However, when using high credit in forex, crypto, or stock trading, you are always better off entering a heavily one-sided market.
Here is why.
A one-sided market is less prone to throw you out of your position, has fewer fakeouts (fake breakouts), will show you a profit faster, and you have a higher probability of being right at the time of your entry.
The last part of that sentence is the most important for a trader, the entry.
When you enter your currency pair or your leveraged altcoin pair, you need to focus on your entry above all else.
This is important because, with a high ratio, the distance to your liquidation price distance will be very close so you can’t afford to enter over and over again only to be thrown out.
This is a typical pattern I see among beginner traders, they focus on a range-bound market because it seems safer, only to get stopped on 80% of their trades.
Take a look at the screenshot of a trending day in the BTCUSD pair:
All of these arrows are entries that would yield an instant profit upon entry.
They are all short-term trades but the important factor here is that you can raise your stop-loss to breakeven immediately.
Now, look for these kinds of days when you are actively trading on margin and enter with confidence.
The best way to fix this is to practice by looking for a trending forex pair, stock, or cryptocurrency and aim to enter with the trend.
Further down in this guide, I will describe range-bound days as an example of when not to enter.
2. Pick a low-spread broker
How is this an important strategy that you need to make a living?
Ok, when you enter and exit the market several times per day as an active day trader you are going to pay the entry fee when you open and close your position.
Also, the spread fee is going to be proportional to your position size, and since you are trading on margin, your position size increases.
This will cause you to pay increased fees daily.
It makes a difference whether you are paying 0.05% commissions or 0.15%.
Let’s take the example of a trader who deposits $1000 in his account as collateral and uses 100x more capital to trade.
He is now able to open a position worth $100.000, let’s calculate how much he needs to pay in fees each time he opens or closes this position with a 0.05% and a 0.15% commission rate.
$100.000 x 0.0005% = $50
$100.000 x 0.0015% = $150
So, with the fee of 0.05% the trader pays $50 each time he opens and closes the $100.000 lot, and with the 0.15%, he pays $150.
That is a huge difference considering that the account size is only $1000.
If he chooses to go with the more expensive broker he can only afford 3 trades before he goes broke but with the cheaper broker, he can afford 10 trades before he is out of money.
It is possible to have 3 losing trades in a row but if your setups are solid you should not experience more than 6 losing trades in a row in a trending market.
So, when you look for your next broker or trading platform, choose the one with the lowest spread or commission.
3. Enter fast and exit fast
If you are having problems with keeping your profits as you are leveraging your contracts, it is probably because of your long holding times.
This kind of trading is a very fast-paced sport and if you are holding your positions longer than a couple of minutes, you are doing it wrong.
But why is this?
Why can’t we hold a leveraged position longer than a few minutes, hours, or even a day?
The first reason why you don’t want to hold a margin position overnight is due to the management fee.
The management fee is an interest payment that you pay for using borrowed money.
In the same way that you would pay a car loan or a mortgage on your house, the bank wants its money.
If we close all positions before the end of the day, we get rid of this fee completely which can be pretty big depending on your ratio of borrowed funds.
Secondly, a leveraged position swings in and out of profit very rapidly and you can get knocked out in a matter of seconds.
That is why whenever you are in a profitable position, raise your stop-loss to breakeven as soon as you can and they keep raising it as the market goes higher.
Should the market make a big jump and give you an early big profit, close the position and take the money.
In the case of highly borrowed contracts, you can make several thousand dollars in less than 30 minutes if you time the market correctly, especially if you are trading cryptocurrencies.
Let’s say that you deposit $2000 in your account and use 125x more capital. This will give you a maximum position size of $250.000.
Now, if you trade a cryptocurrency that is about to make a big breakout you could make between 5-10% in less than 30 minutes.
A 5% profit on $250.000 is $12.500. That is not something you want to throw away and wait for a bigger move, close out the position, and look for the next trade.
The same goes for those who only can afford to deposit $200. A 5% gain with 125x leverage would be $1250, that’s a fantastic result for a trading day.
4. Add your stop-loss order before you enter
Here is another strategy that most beginners do wrong which causes many unwanted liquidations due to high leverage.
If you are new to trading with borrowed funds you really need to pay attention to this part.
Before you enter any position, always add your stop-loss order, period.
Why is this important?
This is important for one single reason, volatility.
Market volatility combined with a high ratio can easily liquidate your whole account in a matter of seconds if you are not careful.
I lost a lot of money in my early days just by using proper risk management.
What could happen is that as soon as your press the buy button the market starts falling.
If you are lucky, the market returns fast to your entry price, and no harm is done, however, sometimes the market keeps falling, and falling.
A falling market without a stop-loss order, is doomed to fail.
I’m not saying that this will happen every time you open a position, on the contrary, your position might result in a super quick profit.
However, as traders, we always want to watch out for those worst-case scenarios.
This is why we always make sure that our positions are properly secured, the same way that you would put on your seatbelt when you get into a car.
If you follow this advice I promise you that you will save a lot of money and stress simply by removing easy errors in your investing.
5. Avoid rang-bound markets
I have touched upon this topic in the first strategy but I want to explain further the concept of why you need to avoid a range-bound market.
A range-bound market is a forex pair, a stock, or a cryptocurrency that is currently traded in a tight trading range.
How is this bad for a trader that is using borrowed funds and why should we avoid it?
Here is the thing.
A range-bound market is going to chop up and down all the time without any directional movements.
It will jump up a few pips or points only to turn back to the same price and start chopping to the downside, and then the cycle repeats.
What will happen here is that when you enter on margin, your liquidation price will be very close to your entry price, and if you open a position that is not going to trend in one direction, you will lose money.
None is skilled enough to predict when the price will go up or down in a choppy environment, there is just too much randomness.
To increase your probability of a successful trade, you need to find a market that is currently trending.
When the price is trending in one direction, most of your entries will be successful, as long as you can pick the right pullbacks.
Take a look at the screenshot below of a choppy trading day in BTCUSD:
All of the arrows you see are small breakouts below a range where all of them would result in a quick loss because the price return back to the entry price within a couple of seconds or minutes.
Compare this image to the one from the first strategy and you will see the difference.
You want to avoid these kinds of days where the price doesn’t have a clear trend.
6. Use the correct technical indicator
Which technical indicator do you think is the best in a strategy?
If you guessed volume you are right.
Volume is one of the few leading indicators that will show you confirmation on the important parts of the chart, such as breakouts, and fakeouts.
When you see a breakout through a range you want to see that the move is backed up by other traders, or real volume so to speak.
Below is a screenshot of BTCUSD where the price has been trading in a range of more or less the whole day but in the evening we have a strong breakout followed by heavy volume.
Notice how the rest of the price action is mostly one-sided with a steady price increase.
Other breakouts follow which are also accompanied by higher volume, something that is very common.
This is something you want to see every time you are looking to enter during a breakout.
It’s also something that will give you strong confirmation that the price could continue during the rest of the day.
Or at least, it will allow you to take several trades in the direction of the breakout with a higher probability of success.
You can combine other indicators that you like as long as you use volume to confirm your hypothesis.
7. Always use negative balance protection
However, if you are using leverage in CFDs or through forex brokers, then you need to pay some attention to this part.
There are still some brokers out there who will let their clients go into debt from margin trading.
Traders go into debt with their brokers when the losses outsize their initial deposit and this can only happen when there is no negative balance protection in place.
For example, when you deposit $2000 and you lose $5000 on a trade, then technically, you owe the broker $3000.
Not many brokers will let this happen but I’ve seen far too many traders lose out on a highly leveraged position and then they lose more than they have in their trading account.
The easy thing to do here is to avoid using a broker that doesn’t offer negative balance protection.
How can you know that your broker offers this?
It’s simple, every broker should clearly explain to their clients if they have this protection against losses.
Take a look at this screenshot.
Valutrades is a popular broker and they highlight the negative balance protection on their home page.
This is something that you want to see on your broker as well.
This will not protect you from losing money but it will protect you from going into debt, something that could occur when using a high ratio.
8. Only maximize your leverage on big breakouts
If you are looking for a way to use the highest leverage in the fx market that will generate real profits, then this is what you have been waiting for.
Most beginners start by randomly choosing a ratio and then jump into trading only to find out that they are not making enough money to support their commission or their losses.
The way you should think about your trades is that 80% of your gains will come from 20% of your trades, this is something that we wrote about in our first leverage strategy guide.
So, how does this work?
First of all, you need to know your setups and be in tune with your market.
Without this knowledge, it is going to be difficult to choose your ratio effectively.
Once you know when you are about to hit a good trade (something that you should feel naturally), only then is it a good time to maximize your borrowed capital.
For example, if you don’t know if the price is going to start a trend, or if the trend is about to end, don’t use margin.
However, if you have seen a large accumulation of contracts in range and you think that the market might break out to the upside, now it’s time to push the credit to the max.
It doesn’t matter if you are right or not.
The time you are wrong you will take a standard loss and move on.
But when you are right you will make the most money you have made all week, from one trade only.
If you repeat this over and over again, you will see that most of your money will come from a few trades only.
You will also learn that when the market is not in a trend, it’s not worth increasing the leverage.
The more you trade the more you will realize that it’s all about these big breakout days that come a couple of times per month.
Until you find them, keep testing the market without using all your buying power.
This will also save you a lot of capital from going to waste on entry and exit commissions.
Remember, it’s not always time to go all in, but when it is time to go all in, you can’t miss your opportunity, you have to take it.
9. Raise your stop-loss fast
Here is a great strategy that every trader should employ in their daily activities and it has to do with how you protect against losses.
When you open a position in the market, three things can happen.
- You could lose out immediately which is nothing unusual.
- The market ends up not moving and you break even.
- The market starts trading up and you make money from the first 10 seconds.
You will probably experience all of these scenarios as you trade your favorite altcoin, penny stock, or forex pair.
For situations 1 and 2, you can’t do much other than accept the fact that today was not the right day.
However, when you find yourself in situation 3, you have a couple of decisions to make, and depending on what you do here you could become a successful short-term day trader.
Most short-term traders don’t raise their stop-loss because they fear that the market will stop them out too soon and they will miss the whole rally.
This mindset is completely wrong, here is why.
You can’t be personally attached to any position or you will end up making the same mistakes over and over again.
When your open a position and you find yourself in an early profit, raise your SL to breakeven or slightly positive.
From here, see what happens.
Sometimes the market stops your our at a breakeven, which is perfectly fine, as long as you didn’t lose money on that particular trade.
What could also happen is that the price keeps trending up and you get to lock in more profit, which is something that you don’t know.
But as a highly leveraged trader, it is all about protecting your downside to have the chance to take more trades.
More trades mean more opportunities for big gains.
That’s how you need to play it. Focus on limiting your downside at all costs and the upside will take care of itself.
Try this out and you will be surprised to see how often the market just carries you upwards from time to time.
This is where your big gains will come from.
It won’t happen every day but as long as you stay patient it will happen occasionally and you will lock in more money than you have ever made before.
10. Don’t deposit more than you can afford to lose
Let’s just face it, high leverage brings high risk, that’s it.
If you are getting into this game you should know that you are running a high risk of losing all the money you have deposited in your account.
This is something that we as traders have to accept or else can’t be a part of the game.
This is why I always preach that you should never deposit more money than you can afford to lose.
Even if you only can make an initial investment of $200, that’s ok.
Your margin ratio will make up for the lack of capital you have.
When speculating with borrowed money you always need to keep in mind that this is a high-risk game and you could get thrown out of the boat in a couple of trades.
If you can’t accept that, then this style of investing is not for you.
However, if you are fine with that, calculate how much you can afford to lose and make your deposit.
I started out with a deposit of $500 even though I had more money in my regular bank account.
However, I could not afford to lose more than $500.
The more you practice the better you will get and it might take a few blown-up accounts for you to learn the game but make sure that when you blow up you don’t risk all your savings.
There will come a point when you start depositing money in your account and start withdrawing monthly profits, but until then, keep the deposits small.
Yes, scalpers benefit the most from high credit ratios due to their short holding times. Since prices fluctuate a lot on shorter timeframes, scalping is the most effective way of using borrowed funds.
You can use any ratio as long as you know when to maximize your borrowing power. Read strategy number 8 to learn when to use the highest ratios. Also, each trader has a personal limit to how much borrowed money they feel comfortable using. As a rule of thumb, the shorter your timeframe is the more capital you can use.
If you are already familiar with this style of trading and you feel that you want to increase your profitable trades you should try it out. However, follow strategy number 10 if you are a beginner.
If proper risk management is used in combination with our best setup, margin trading is not more dangerous than regular trading. The focus should however be on protecting your downside at all costs. Read strategies number 4 and 7 to learn how to protect your downside risk.
If you follow all the strategies outlined in this guide and perfect strategy number 8, there is a good chance that you could make a small fortune occasionally. However, most traders who start out find it difficult to enter and stay in their positions long enough to make significant gains. Try to push the credit on your profitable setups and avoid losing too much money on your bad trades and you could end up making a lot of money.
In this guide, I break down my 10 most used high leverage trading strategies for beginner traders. Every strategy has something to bring to the table whether it’s a way of protecting your downside or a way of increasing profits.
I suggest that you go through all of them one by one and write down the most important things that you read. From here, start by implementing each strategy in your daily trading activities for the best result.