Advantages
*Enhances Capital Efficiency: In forex, capital efficiency is the comparison of how much money is being risked relative to potential profits. High degrees of leverage help traders maximize the potential of their risk capital and turn minimal investments into substantially larger returns.
*Extraordinary Profits: The greater the applied leverage, the greater the potential profits. Through opening inherently large positions in the market, beneficial moves in pricing can produce extraordinarily positive returns.
Disadvantages
*Risk: Make no mistake—applying leverage exponentially increases the trader's risk exposure. As position sizes grow larger, per PIP values also grow. In the case of sudden volatility , capital drawdowns on heavily leveraged positions may be severe. If margin requirements aren't able to be met due to unrealized losses, margin calls and premature position liquidations are possible.
*Stress: The physical and mental stress associated with trading highly leveraged forex positions can be intense. As leverage is increased, the "stakes" of each trade go up dramatically. Subsequently, trader psychology often changes, with big profits leading to a state of euphoria while sizable losses prompt desperation. When in a euphoric or desperate state, traders are more inclined to make emotional decisions rather than strategic ones.
*Enhances Capital Efficiency: In forex, capital efficiency is the comparison of how much money is being risked relative to potential profits. High degrees of leverage help traders maximize the potential of their risk capital and turn minimal investments into substantially larger returns.
*Extraordinary Profits: The greater the applied leverage, the greater the potential profits. Through opening inherently large positions in the market, beneficial moves in pricing can produce extraordinarily positive returns.
Disadvantages
*Risk: Make no mistake—applying leverage exponentially increases the trader's risk exposure. As position sizes grow larger, per PIP values also grow. In the case of sudden volatility , capital drawdowns on heavily leveraged positions may be severe. If margin requirements aren't able to be met due to unrealized losses, margin calls and premature position liquidations are possible.
*Stress: The physical and mental stress associated with trading highly leveraged forex positions can be intense. As leverage is increased, the "stakes" of each trade go up dramatically. Subsequently, trader psychology often changes, with big profits leading to a state of euphoria while sizable losses prompt desperation. When in a euphoric or desperate state, traders are more inclined to make emotional decisions rather than strategic ones.