One of the great advantages of trading CFDs is the leverage. So why would anyone want to trade contracts for difference without leveraging? First of all, for fear of losing everything. This is a more than justified fear, considering that CFDs are extremely risky; So much so that the vast majority of retailers starting out in Forex throw in the towel after blowing up their first account.
In any case, the failure stories and statistics don’t seem to deter anyone. Neither vicarious learning nor the analytical mind has a place in the OTC markets. As much as financial authorities try to inform and protect retailers, there are still small investors who need to leverage like there is no tomorrow. Failure to do so would be like doing without the salt in your salad or drinking your coffee without sugar.
Then there are those who do not add salt to their food to control tension and who switch from adding sugar to their coffee because of the calories (or they do not drink it directly so as not to get hooked on caffeine). They are the novice investors, who see in contracts for the difference the opportunity to operate bilaterally, but who are prudent enough to learn to swim before jumping into the pool.
Why trade CFDs on currencies?
If the leverage makes the pool an ocean, it is best to skip it. This does not mean that CFDs should be dispensed with, as they allow you to short and trade on a multitude of assets. In the case of the forex market, they are, in fact, a classic. FX and CFDs go hand in hand, and this combination does not necessarily imply greater risk. Without leverage, the potential gains or losses are the same.
In this sense, and saving the distance, trading with a real asset or an underlying one does not differ in the result. Obviously, it is much cheaper to trade CFDs on currencies than to move them directly with a bank. Operating without leverage and with the volume that a retailer usually moves, the fees charged by a bank significantly reduce profitability. A contract for difference on a currency will always be more attractive.
Can you trade Forex without leverage?
Putting the forex market, CFDs, and OTC traders together, the leverage is unbeatable. The question is how it can be managed so that the account does not go bankrupt. It all depends on the leverage offered by each broker and how transparent it is when applying it. Forex trading with easyMarkets  the maximum leverage is 1: 400 (1:30 to retailers under the regulation ESMA), but the ratio would always define.
Before opening a trade, it is clear how much you risk, how much it takes to trade and what the margin is. The relationship is simple: the greater the amount risked, the greater the leverage. This also influences the placement of the stops, which will be closer to the market price. Minimizing leverage is a matter of risking less capital, setting wider stops and less stress on the cardiovascular system on the way.
With other brokers, the leverage is not as easy to handle, especially for novice traders who are dancing the numbers. It is much clearer that leverage is simply investing with a face value that is higher than your available capital. In any case, it is enough to know in advance the margin that the operator retains in each operation. The calculation is pretty easy: the more you hold, the lower the leverage.
Common sense is also a good tool for controlling leverage. Even if the necessary margin to operate is unknown, what is the nominal value or what is the leverage ratio that is being managed, it would be enough to not open operations like crazy until the broker says enough. Although such a degree of ignorance about the most basic concepts of an operation should discourage anyone.
Still, it is a giant step to understand that the level of leverage is directly proportional to the number of open trades. Hence, Forex insiders are advised to limit themselves to monitoring a single trade, avoiding short-term strategies (which often involve high leverage ratios) or, at best, limiting the maximum speed to swing trading. And the leverage, as close to zero as possible.
Probably wanna read:
- What should your Forex Trading Plan have?
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