How should a trader select the optimum leverage level?
There is no generally correct answer to how much leverage should a trader use. That depends on one's trading strategy, style, etc.
The correct answer to this question mainly depends on the trader's trading strategy and the actual vision of upcoming market moves. That is, scalpers and breakout traders try to use high leverage, as they usually look for quick trades, but as to positional traders, they often trade with low leverage amount.
You should use the level of leverage most optimum for your trading strategy.
How to manage risk that comes along with trading?
So, while leverage can increase the potential profits, it also has the capability to increase potential losses as well, that is why you should choose carefully the amount of leverage on your trading account. But it should be noted that though trading this way require careful risk management, many traders always trade with leverage to increase their potential returns on investment.
Here are the basic points to manage the leverage risks properly:
Using trailing stops,
Keeping positions small
Limiting the amount of capital for each position.
Keep in mind that the leverage is totally flexible and customizable to each trader's needs and choices.
To measure the leverage for trading - just use the below - mentioned leverage formula.
Leverage = 1/Margin = 100/Margin Percentage
Example: If the margin is 0.02, then the margin percentage is 2%, and the leverage = 1/0.02 = 100/2 = 50.
Disclaimer - Since we care about you, a word of caution, Leveraging your trades magnifies returns but it also magnifies losses. It's important that when you indulge in leveraged trading - do so only if you have the risk capital; understand the risks of the same and wherever possible, take steps to lower your risk! This case applies for both intraday leverage as well as positional leverage. Investment in securities market are subject to risk, please read all related documents carefully before investing.
