Everyone knows that leverage is a crucial part of forex trading, but have you known about floating leverage? Is it bad or good?
The dilemma between fixed and floating in forex trading is commonly associated with spreads. Not many traders are aware that it also applies to leverage, partly due to a lack of information from brokers. From their point of view, it's quite understandable since trading with floating leverage doesn't sound appealing to many traders; leverage is always connected to the margin so the change in leverage would also mean an adjustment in margin requirement. Why bother dealing with margin changes when you can easily trade with fixed leverage?
Nevertheless, floating leverage does exist in some brokers and if you happen to trade with a broker that exercises it, you definitely need to understand what it is and how it works. Otherwise, you'll be left unaware when the margin requirement increases, and consequently, you can't do anything when your position is suddenly closer to getting stopped out.
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Basic Guide to Floating Leverage
It's not exactly difficult to comprehend what exactly is floating leverage, for it carries out what its term implies. The common leverage is known to never change so it's actually categorized as fixed leverage. On the other hand, floating leverage can change under certain conditions, usually based on the trading volume or equity.
Volume-based floating leverage typically decreases along with the increase of trading volume. Say you initially trade with 1:200 leverage. When your trading volume amounts to more than $3 million, the leverage would be automatically changed to 1:100. The adjustment can apply to the next level of volume increase, depending on how your broker sets the rule. It is important to note that the change of margin requirement that is brought by the new leverage would only apply to positions opened after the adjustment So, you don't have to worry about increased margin in your previous trades.
What about the equity-based floating leverage? The idea is similar, but instead of using trading volume as the basis, floating leverage will be set upon the amount of equity in your trading account. In a scenario where leverage would be adjusted for every $10,000 change in equity, you may deal with a leverage decrease every time your equity passes the threshold of $10,000, $20,000, $30,000, and so on. Conversely, your leverage can be increased when your equity declines.
Which Type of Floating Leverage is Better?
For a trader, volume-based floating leverage is much more complicated because it's vulnerable to market changes. It's common knowledge that the forex market is full of uncertainties, so the probability of getting a leverage adjustment due to volatility changes is higher than you initially think. Another thing is, the volume-based policy's stance towards leverage change always leads to a decrease, so traders are consistently required to pay attention to margin increase.
On the other side, equity-based floating leverage is less exposed to market risks. Should the equity increase due to floating profits in the account, traders could just withdraw funds from their account as equity is made up of balance and the floating profit/loss. In addition, the policy is more flexible as the leverage can be adjusted higher or lower depending on the equity change.
Why Do Brokers Apply Floating Leverage?
With the existence of fixed leverage that is much more simple and appealing to clients, you may wonder why some brokers choose to use floating leverage in the first place.
To start with, leveraged positions are mostly possible because of the broker's capital. When a trader increases their risks by building up their trading volume or equity, a big portion of the broker's capital would be also put at risk. By lowering the leverage, brokers would be able to alleviate their risks, ensuring their survival in the future.
One more reason that supports the application of floating leverage has something to do with brokers' preference on clients that they think are deserving of high leverage. Indeed, leverage is originally intended for traders who really need it; those with small accounts who have little to no urge to go big in their trades. When a trader is capable of opening large positions or increasing their equity to more than $10,000, they will be considered experienced. They don't necessarily need high leverage to support their trades. Increasing the risk exposure to support such traders would be a waste in the eye of the broker.
Brokers with Floating Leverage
There are not many brokers using floating leverage. For those who do, they prefer to mention it on terms and conditions. That's why you may never find a broker explaining their floating leverage in the same manner they promote zero spreads or fast execution.
To name a few, some brokers known for their volume-based floating leverage are:
FXTM
🌐 WebsiteFXTM was initially launched in 2011 with a unique vision to provide unparalleled superior trading conditions. Opening an account in FXTM would also bring about access to advanced education and sophisticated trading tools in the forex industry.
Now, FXTM is registered under the Financial Conduct Authority of the UK with the number 600475. The company is also regulated by the Cyprus Securities and Exchange Commission with CIF license number 185/12, and is licensed by the Financial Sector Conduct Authority (FSCA) of South Africa, with FSP No. 46614
FXTM has 1 million registered accounts with more traders joining every day. The company continually tries to improve their performance and have got many awards such as Best Trading Experience 2019 by World Finance Awards, Best Online Forex Trading Company Nigeria 2018 by International Finance Awards, Reputable Investor Education Forex Broker Award 2018 by Hexun.com, Forex Brand Of The Year China 2018 by Fxeye.Com, and many more.
As a responsible broker, they determine leverage (expressed as a ratio of transaction size relative to trader's buying power) according to the trader's level of knowledge and experience in trading, which is evaluated by the Appropriateness Assessment. The company also enables trading with leverage up to 1:1000.
As for spreads, FXTM offers low spreads starting from 0.1 pip, so traders can withdraw profits at the start of trading. The company, which has headquarters in several countries, uses No Dealing Desk (NDD) technology and partners with credible liquidity providers to provide the best bid and ask prices.
For beginners, there is an automatic trading facility called algorithmic trading provided. When trading in FXTM, traders can develop their trading strategy or adopt other traders' strategies. Furthermore, the strategy is applied to automated trading systems, such as Expert Advisors. The purpose of this system is traders do not have to worry about losing opportunities while not observing the market so that profits can still be earned.
Three types of ECN accounts use the MT4 and MT5 trading platforms. There are also mobile and Tablet Apps trading platforms. Aside of providing many account variants, FXTM goes above and beyond to ensure that their client receives excellent support that they deserve, making their trading experience optimal and user-friendly.
FXTM also provides a diverse range of products. In addition to over 50 currency pairs, they provide gold, silver, CFD on commodity futures (oil), CFD on ETFs, and indices.
Education about the basic concepts of the forex industry is also accessible in this broker. Traders can read all the concepts provided in the form of e-books, video tutorials, articles, webinars, and forex seminars. There are 17 languages provided on the FXTM website to make it easier for traders to learn about forex.
Traders are also given various choices for payment methods, including Credit Cards (Visa, Mastercard, Maestro) and E-Wallet (Neteller, Skrill, Western Union). For withdrawing funds, traders are not charged a fee with a length of 2 hours to 2 days. Traders can live chat to ask further questions and contact the admin via email. There is also a question and answer page about forex trading on FXTM.
Alpari
Alpari International is one of the largest forex brands. They always try to work hard to make sure traders make the best trading and investment decisions. Established on 24th December 1998, Alpari has started from a small group of men who are looking to start a business in finance in one of the most economically precarious years in Russia's history.
During 20 years of experience in the forex industry, there are about 2 million traders choosing Alpari as the broker to trade with. Alpari has a head office on the 5th Floor, 355 NEX Tower, Rue du Savoir, Cybercity, Ebene 72201, Mauritius. The company is regulated in St.Vincent and the Grenadines (the licensed number is 20389 IBC 2012), IFSC Belize (the licensed number is IFSC/60/301/TS/18).
This broker uses MetaTrader 4 and MetaTrader 5, both of which offer great flexibility, charting tools, and an easy-to-use interface. For higher volumes, the company also provides the Alpari International Direct platform which offers enhanced features for advanced investors.
The company offers an array of live trading accounts to choose from. Each one offers different opportunities and allows traders to trade in different ways. All of their accounts use USD, EUR, GBP, and NGN as the options for base currency. But, NGN accounts are only available to clients in Nigeria.
Each kind of account has a different spread. At Standard Account provides spreads from 1.2, the spread of Micro Accounts is from 1.7, and ECN Account and Pro Account have spread from 0.4. A trader can open an account in Alpari and opt to trade currencies (FX majors, FX minors, FX exotics, and FX RUB), spot metals, spot commodities, stock trading, spot indices, and crypto-currencies.
A trader can find out what the minimum spreads, pip value, swaps, and trading session times are for each instrument before start trading. If the trader is still not sure where to begin, they can found the answer in a guide provided by Alpari on their official website.
Their guide to trading is designed to break down the terminologies and answer the most frequently asked questions by traders. A trader will be trading more quickly and with more confidence in no time.
Besides, Alpari offers PAMM (Percent Allocation Management Module) which allows a trader to choose their desirable Account Manager. This allows traders to have a chance in gaining more profit without advanced knowledge of forex trading. These managers usually have a wealth of experience in the markets, with tried-and-tested strategic trading decisions.
This program also gives opportunities for well-seasoned traders to become Strategy Managers. As Strategy Managers, they can use their trading experience and earn more from profitable trades. They have privileged access to Alpari's advanced programs and all the tools they need to cultivate a massive following of investors. The investors then will help Strategy Managers to earn more through commission fees up to 40%.
Their website also provides various Forex Trading Strategies. Because to increase the chance to profit, it's important to know as much about the markets and the trading strategies behind them as possible. Alpari believes that strategies provide traders with a roadmap for trading, reducing panicked decision-making that can occur in the heat of the moment. In other words, trading in Alpari allows traders to learn about any kind of forex trading strategy.
For educational purposes, the company provides Trading Webinars, one of the variants of technology that allows users to hold seminars, talk shows, and discussions online, without having to communicate face to face.
Alpari creates a very convenient funding and withdrawal experience for each trader. A trader can transfer with any kind of methods, such as e-payment (example: FasaPay, Local Transfer, TC Payment, etc), credit cards (Visa, Mastercard, and Maestro), E-Wallet (Neteller, Skrill, VLOAD, TC Pay Wallet, WebMoney, Perfectmoney, Bitcoin), and bank transfer. If there's been no trading activity on the trader account for at least 6 months, an inactivity fee of 5 EUR/USD/GBP will be applied.
All Back office transfers are processed during standard business hours, 03:00-19:00 GMT+2 (GMT+3 during DST), Monday-Friday. If traders still feel confused, they can contact Alpari's team by any method, such as Live Chat, Telegram, or email.
As for those going with the equity-based floating leverage are:
RoboForex
Well-known as one of the most committed brokers in trading technology advancements, RoboForex reaches out to a wide range of traders, from beginners to the more experienced ones who seek sophisticated trading environments with ECN-like spread and execution. The company is established in 2009 and holds a head office in Belize. Registered under the IFSC Belize, RoboForex manages to attract clients with fantastic leverage as high as 1:2000.
As for the service for European-based traders, RoboForex specifically operates a different brand called RoboMarkets that is still a member of the head company (Robo Holding Company) and has an office in Cyprus. The operation is licensed under Cyprus Securities and Exchange Commission (CySEC).
Following its commitment to be the forefront in terms of a high technology forex broker, RoboForex provides various trading platform choices including MetaTrader 4, MetaTrader 5, cTrader, Social Platform, and its proprietary platform.
Trading instruments range from Currencies to Metals, Indices, Energies, Stocks, ETFs, and Cryptocurrencies. Aside from basic service, trading in RoboForex also presents a collection of distinctive features such as the PAMM system and Social Trading network developed with their own brand of CopyFX, ETFs, and stocks that reaches up to thousands as the available trading assets, tight spreads, and payment method via Bitcoin and Ethereum.
RoboForex also accepts payment through a surprising online gateway besides wire transfer and credit card. The alternative methods are Skrill, Neteller, FasaPay, UnionPay, WebMoney, Perfect Money, Qiwi, and other similar online payments.
After opening an account, traders can start with a minimum deposit as low as $10 in Pro Accounts. To specify, here is a short description of each type of accounts that traders can choose from in RoboForex:
Pro-Standard
- Minimum Deposit: $10
- Spread: from 1.3 points
- Minimum order volume: 0.01
- Leverage: up to 1:2000
ECN-Pro
- Minimum Deposit: $10
- Spread: from 0 points
- Minimum order volume: 0.01
- Leverage: up to 1:300
Prime
- Minimum Deposit: $5,000
- Spread: from 0 points
- Minimum order volume: 0.01
- Leverage: up to 1:100
Pro-Cent
- Minimum Deposit: $10
- Spread: from 1.3 points
- Minimum order volume: 0.1
- Leverage: up to 1:2000
R Trader
- Minimum Deposit: $100
- Spread: from $0.01
- Minimum order volume: 1 stock
- Leverage: up to 1:200 (during the trading session) and up to 1:4 (after the trading session)
The R Trader account signifies RoboForex's attempt to distinguish forex and stock trading condition. It appears that the platform used in that particular account is RoboForex's in-house product that is specifically designed for stock online trading.
The overall description above depicts RoboForex as a distinguished broker despite its status as an offshore-regulated entity. Not only successful in providing various trading technology, but RoboForex also focuses on stock trading for more conservative traders. However, it is also important to note that RoboForex is one of the few brokers that boldly offer an extremely high perimeter of leverage at 1:2000.
Exness
The choice of broker is adjusted to the needs of each trader. If you are a trader who only needs a basic platform and trading features with the best attributes, then Exness can be your best choice.
Exness covers its lack of feature variations with other advantages like low spreads starting from only 0.1 pip. This is very suitable for traders who use scalping strategies (Scalper). Spreads on major pairs in certain account types can also be as low as 0.0 pip, depending on market conditions.
Not only that, but traders can also enjoy other advantages such as automatic fund withdrawals. Exness processes the majority of client withdrawals instantly, without manual checks; however, withdrawals may be subject tos depending on the payment provider or method of choice.
The safety of traders' funds is also guaranteed as Exness is one of the European-based STP/ECN brokers. Exness's ability to become an official partner of the Real Madrid soccer team for 3 years, starting July 2017, also provides evidence that the company has high solidity.
Deposits and withdrawals may be made 24 hours a day, 7 days a week. However, it is important to note that the company shall not be liable fors in processing deposits and withdrawals if suchs are caused by the payment system.
Traders do not need to worry about transaction fees when depositing and withdrawing. Exness doesn't charge any transaction fees to traders even though some charges may be incurred depending on the payment provider of choice. A variety of payment methods are provided for traders, including Wire Transfer, Bank Card, Neteller, Skrill, and many others.
The financial reports and metrics on the Exness website are audited quarterly by Deloitte, one of the four largest public accounting firms globally.
Moreover, Exness is one of the mote transparent brokers in the online trading industry. Traders can find out all information about this company on the website, such as trading volume, number of active clients, client deposits, company funds, and many more.
The platforms provided by Exness vary in MetaTrader 4, MetaTrader 5, Web, and Mobile platforms. This makes it easy for traders when trading on Exness, as they can also access Exness platforms anywhere and anytime.
Over the years, Exness has developed into a broker that attracts traders. Trader's trust is further enhanced by its compliance with financial regulations like the FCA and CySEC.
One measure of client confidence can be put on the trading volume. By December 2018, their clients' monthly trading volume reached USD348.4 billion and active traders around the world surpassed 50,342.
Through the program offered by Exness, traders also have the opportunity to earn extra income by becoming their partners. From the Introducing Broker (IB) program, partners can earn up to 33% spread commission from every new client that registers with them.
Additional income can also be obtained from Exness Partners. Traders can get a spread commission of up to 25% per transaction made by traders who register through an affiliate link.
When trading with Exness, clients can also make use of its free VPS hosting services. A VPS (Virtual Private Server) offers increased reliability and stability for traders as they can maintain their trades and expert advisors without interruption in the event of unexpected technical issues, such as internet or electricity downtime.
From the review above, it can be concluded that Exness is a favorite broker for traders because of low spreads and flexible account types. This condition is very suitable for traders with limited funds but is in need of more opportunities to get maximum profit. This broker is also well known for its maximum support on both new and existing partners.
Floating leverage is sometimes not imposed on all account types. In fact, most brokers can apply different types of leverage for each account type or each asset class. A broker may use fixed leverage in the Standard account but apply floating leverage for the Pro account. Similarly, a broker can go with fixed leverage for its forex trading but apply floating leverage on CFDs, ETFs, and cryptocurrencies.
All information on floating leverage rules is usually described in the agreement terms from when a trader opens an account or displayed as little notes below the trading account/contract specification table on the broker's webpage. When the trading volume or equity surpasses the broker's limit and activates a change in leverage, there will be no notification to remind traders.
Brokers who normally operate with fixed leverage can temporarily switch to floating leverage in case of extreme market changes. For example, a 1:100 leverage for cross currency pairs can be reduced to 1:50 due to an upcoming event that may cause price spikes. Irregular change of condition like this is usually announced by the broker using its official channels and other communication means so that every trader would be notified.
As the practice can be different for each broker, it is highly recommended to ask the broker's customer support regarding the terms and conditions on floating leverage.
What It Means to You
Taking everything into consideration, does it mean you should avoid a broker with floating leverage even though there are other qualities that you like from the broker? Supposed you're attracted to an ECN broker for its raw spread, do you have to let it go just because the broker uses floating leverage? What if the raw spread is an integral part of your trading strategy?
Well, you don't necessarily have to take such a measure, especially if you're a retail trader who plans to trade with normal position sizes and equity below $10,000. After all, the adjustment in floating leverage is usually activated when your volume or equity reaches a certain extreme level that is unusual for most traders. It is believed that only scalpers, expert advisor users, and other types of traders who deal with big volumes are affected by floating leverage.
If you end up with a broker that applies floating leverage, you only need to learn your broker's policy regarding that matter and consult with the customer service to avoid any possible misunderstanding. Later on, make sure that your volume or equity never surpasses the limit for floating leverage. Should the condition be unavoidable, you could prepare to increase your margin so your account is not vulnerable to margin call or stop out.
6 Comments
Rashed Al Maun
Jan 1 2023
I think that all depends on your trading style and money that you invest. If you are doing scalping then you can use higher leverage but you need to be carefull with leverage. Because of leverage forex is risky and many traders lose money. But if you use it in right way leverage is helping you to earn money.
Kennedy
Jan 13 2023
Rashed Al Maun :In my opinion, brokers using floating leverage are very concerned about the misuse of leverage that many traders do. Also, for the type of floating leverage itself, I prefer to use equity-based floating leverage. Why do I prefer floating leverage based on equity? I have several reasons: Firstly, if it is based on trading volume as in the article, it is very uncertain and may affect your leverage and the leverage may not suit your condition. About the leverage, you can try to read this article : article about the leverage 1:500 to see do the high leverage (1:500 above) can suit to you. Second, the floating leverage based on equity can match your equity very well. So, your trading become more controllable. Because of this, the leverage offered by the broker looks very reasonable and very tradeable. It also prevents beginners from choosing the wrong leverage that leads to overtrading. That what I said about controllable. Therefore, if a beginner wants to avoid risk and find the perfect leverage, they can opt for variable leverage. Therefore, I do not agree with you that the amount you are investing can affect your trading. There is another factor.
John Hardy
Jan 13 2023
Kennedy: I disagree with you, for me, fixed leverage, is the best option for trading. If you read the article carefully, first of all the broker didn't say anything about floating leverage, there is no clear information of the floating leverage when you signed up. Second, your floating leverage can change based on not only equity, but also market and account type! It is clear can affect your trading and you must be prepared if for somehow suddenly your floating leverage changed. And, as the article states, there are several traders can be affected to floating leverage include scalpers! It's very annoying and all I can say is if you want to sign up read the terms and conditions of your broker to avoid things like no information about variable leverage.
Manhattan
Jan 13 2023
John Hardy: The article states that scalpers, Expert Advisor users, and other types of traders who trade high volumes are affected by floating leverage. Why is this affected? Meanwhile, the stock is below $10,000 and said it is not subject to floating leverage. Leverage, on the other hand, is the trading tool most often used to increase buying power when you have lower deposit, less than $10,000 for example.
John Hardy
Jan 13 2023
Man, in my opinion, it is very simple to answer. For example, if your equity is $5,000 and you get floating leverage as 1:100. You will get purchasing power equivalent to $500,000. Meanwhile, when your equity is at 11,000 USD; floating leverage will automatically be set to 1:50. Your purchasing power is actually $550,000 and it will be almost the same with a capital of $5,000 with 1:100 of leverage! Scalpers with high trading volume of course need higher leverage to trade, to open more positions. Normally, if they want to entry higher volume, they will deposit more funds and use higher leverage but due to floating rate their purchasing power will limited because of the floating leverage. So in summary, floating leverage can limit your purchasing power and it seems like brokers want to balance the purchasing power of all their traders.
Richardo
Jan 13 2023
John Hardy: I have another opinion. The best leverage for me is 1:200 or 1:100. What if I trade with floating leverage? I guess I won't have any problems since I trade very rarely. I can agree with you on scalping or some other trading method that requires high volume. But for me and all traders who trade in high volume but enter once or twice will not be affected. And this article clearly explains the floating lever very fully. In the end it all depends on the trading method you used and also the money management that you apply. You can read this article and as soon you will realized the Forex is not only about equity and leverage : optimizing money management