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Leverage in Forex allows increasing trading accounts values by literally allowing traders operate with virtual money. For each real dollar traders fund their accounts with, Forex brokers add more funds, increasing traders buying/selling capabilities on the currency market. A leverage of 50:1, for example, means that for each dollar invested a broker adds 50 dollars on top, making the trading account 50 times larger. Thus, funding your account with $1000 at 50:1 leverage would enable you to operate a $50 000 account.
Only traders with really large accounts may afford trading Forex without leverage. For all other traders leveraging their investments is often the only way to participate in Forex currency trading and be able to operate large trading lots while make reasonable profits from trading Forex.
What leverage does is it allows a trader to trade money they don’t possess. We may call it virtual money trading.
While it is possible to make profits with virtual money in Forex, it is absolutely impossible to lose virtual money, instead traders lose only real money they have invested or earned as a result of profitable trading.
Forex brokers offer various leverage options: from 10:1 to 500:1 today.
While experienced traders have no problems choosing the best leverage level for their trading accounts, novice traders often have difficulties selecting the right leveraging option.
There is danger in almost everything if one doesn’t know how to use it.
High leverage can be dangerous IF a trader doesn’t have basic knowledge about using it properly. That’s right, basics knowledge about leverage is just enough to keep any Forex trader away from troubles and actually stop worrying about this subject at all.
Let’s take an example.
Invested capital = $1000
Leverage 50:1
Buying/selling capability = $1000 * 50 = $50 000
This enables a trader to buy/sell a regular trading lot size of $10 000, which looks good and feels good. But is it safe?
Leverage allows to trade larger positions on the market. Larger positions mean larger profits when a trader wins a trade, but also larger losses if a trader was wrong on the trade.
In our case (with $10 000 lot size) each pip trader earns brings him $10 profit, but each pip he loses cost him -$10.
Leverage concerns are all about losses. So let’s focus on the simple math.
A normal regular situation: the market moves 20 pips against an open position and our trader loses 20 pips.
20 times $10 equals -$200.
Those $200 dollars will be subtracted from initial $1000 account balance, which will bring it to $800 now. (Buying/selling capability will now match $800 * 50 = $40 000)
What we actually have is that 1/5 of traders’ initial investment has been lost in just one trade! — a trade where conditions were moderate, e.g. losing 20 pips is not a big deal for currency trading. No need to mention that in two consecutive losing trades of -50 pips each our trader would lose the entire account, it is so quick! That’s why you may hear that traders call high leverage as “leverage the killer”.
Conclusion: one cannot trade with large virtual money having invested little real money. Highly leveraged account and high buying/selling capability doesn’t mean one should be trading away with large trading lots.
In our case, having invested 1000 dollars no matter at what leverage, a trader can only trade reasonably with a lot size of 1000 dollars (or less) where each pip would cost $1 (or less). Hence, losing 20 pips would mean losing only $20 on one trade. We advice trading with pip cost even smaller than $1 for accounts smaller than $1000.

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These are the simple truths about the Forex market. Truths are usually gained from experience and always cost you more that you bargained for.

• If you trade Forex without a system - you will lose! You need a system and good money management to have an advantage in the market.
• The market is always right. When you win it’s always because you followed the market. Your trade will not affect the market, so why try and go against the trend. “run with the bulls” and “follow the crowd”
• 90% of traders will give their money to the 10% who know what they are doing. The Forex market is a zero sum game. The 10% who know what they are doing will happily take your money - nothing personal. They have no emotion! That is why they are successful!
• The Forex market is $3-trillion a day market driven by the banks. There is a lot of money flowing through the market. The tiniest piece of this pie is enough for your wildest dreams!
• Most traders with a system lose because they over trade. When you over trade, you are not following the rules. You think you can time it better, or, you feel lucky and trade larger positions. You will always get burned.

Happy trading!

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When you talk about the bull or the bear, it is common knowledge that you are referring to the stock exchange. A bull means share prices are rising and a bear means they are falling. The outcome of share prices have tremendous effects on the society, and especially for those who own stocks, the results can be anything from life-saving to absolute devastation.

The stock exchange is a very lucrative way to make money. If you make the right investments, it is possible to make a fortune within a very short time. There are those who just wish to make a few extra dollars to complement their steady incomes, but some investors plunge into the gamble with their lives’ savings and more. For the most serious investors, money is not the only investment they make, the entire worth of their beings depends on the bull or the bear.

Throughout the history of the stock exchange, the drastic fall of stock prices has caused great misery to many people. Every now and then, we hear news of an investor suffering from a nervous breakdown due to unfavorable movements of the market, not to mention those who committed suicide as a result of loss. These people invest everything they own on stocks and their whole livelihood, self-worth and future are all dependent on the fickle fluctuations of market shares. No wonder they have no reason to carry on with life when their stocks take the plunge. The stock market crash which led to the Great Depression is the prime example of the effects of the stock exchange on the society as a whole. It was truly one of the darkest periods in the history of the United States.

That does not mean investing in stocks is not worthwhile, but be warned not to stake everything you have on it. It is a great way to invest because if you know your ropes to it, you can make money very efficiently. However, be truly calculative about how much of your wealth you should apportion to investment and do not go beyond the limit such that it will jeopardize your other forms of wealth, such as your self-worth, your family and livelihood. There is always a part of our wealth that is dedicated to keep our personal happiness in tact and that is the best way to use money. If everything we have is measured by the mere value of dollars and cents, life is not truly worthwhile.

It is important to balance monetary wealth with other forms of wealth. Never compromise priceless human values and the basic things that make up your personal happiness in your quest to make money. The most ideal and meaningful life is one with the right balance between material and personal wealth.

When you invest in stocks, always bear in mind that share prices can rise and fall. Although experts may tell you there are sure things in the market, nothing is quite certain until thrisk, minimisation, e results are announced. Be a wise investor, and make sure you always have sufficient reserves to keep a meaningful and happy life going despite bull or bear.

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At its meeting today the Board decided to lower the cash rate by 25 basis points to 7.0 per cent, effective 3 September.
Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the Board has been seeking to restrain demand in order to reduce inflation over time.

Statement by Glenn Stevens, Governor Monetary Policy RBA

As a result of increases in the cash rate last year and early this year, additional rises in market interest rates and tougher credit standards, financial conditions have been quite tight. Some further tightening has occurred over the past couple of months. Conditions in international financial markets remain difficult, with heightened concerns over credit persisting.

The evidence is that the tight financial conditions, in conjunction with other factors including higher fuel costs and lower asset values, have exerted the needed restraint on demand. Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has slowed. Surveys suggest a softening in business activity and growth in production has slowed. Indicators of capacity utilisation, while still high, are declining and there have also been some signs of an easing in labour market conditions.

The rise in Australia’s terms of trade that has occurred is working in the opposite direction, adding substantially to national income and ability to spend. Fixed investment spending by businesses continues to be very strong. At the same time, high prices of oil and a range of other commodities have added to global inflationary risks. They are also dampening growth in a number of countries.

Given the opposing forces at work, considerable uncertainty has surrounded the outlook for demand and inflation. On balance, however, it is looking more likely that household demand will remain subdued and overall economic growth slow over the period ahead. Inflation is likely to remain relatively high in the short term, with the CPI affected by the high global oil prices in mid year and other increases in raw materials prices. But looking further ahead, the outlook for demand suggests that inflation in both CPI and underlying terms is likely to decline over time, provided wages growth remains contained. The Bank’s forecast remains that inflation will fall below 3 per cent during 2010.

Weighing up the available domestic and international information, the Board judged that there was now scope for monetary policy to become less restrictive. The Board will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2-3 per cent target over time.

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