Leverage is often seen as a double-edged sword. If you're a micro account user, what leverage is the best and safest for you?

One of the reasons why many people are attracted to forex trading compared to other financial products is because of the possibility of trading with high leverage, where some brokers even dare to offer leverage above 1:1000. Even though you've often heard of leverage, maybe you don't really understand what it is, how it works, and how much leverage is right for you. For those of you who own a micro account, the following article will explain in detail how to choose the right leverage with your small balance.

leverage for micro account

 

What is a Micro Account?

A beginner in forex trading usually doesn't want to invest a ton of money into the market immediately without first learning their way around it. They would prefer to trade on a platform that allows them access with minimum investment and the most benefits. This is where a micro account comes into play.

A micro account is a type of account offered by most forex brokers which allows them the ability to trade forex pairs with very low investments. This account also offers some really good leverage options in order to fully benefit from minimum investments. The name micro account comes from the fact that it offers trading with lots as small as 0.01 or micro lots.

 

What is Leverage?

Leverage is simply a form of a loan. With leverage, the broker allows you to buy bigger positions than the capital you have in your account.

In a way, they lend you money which you can use to your advantage. However, it also comes with a lot of risks. Depending on the value of the leverage on your account, you may be playing it safe or playing it risky. The higher the value of leverage on your account, the more opportunity you have to earn more profit as you'll be able to place bigger positions.

However, it is important to note that you have an equal risk of making a loss as well. The bigger leverage you use, the higher will be the risk of getting losses. It is therefore extremely important to be very careful when choosing leverage for your account.

 

Best Leverage for Micro Account

Since micro accounts are typically used by beginners who don't want to make a big investment, it is therefore even more important that they use the leverage that allows them free range to earn more than they invested but also with not that high of a risk of making a loss.

A micro account can have different minimum deposit requirements as small as $10 or lower, depending on the broker. This usually ranges from $1 to $100. For any deposit amount in this range, the best leverage for a micro account would be 1:200. This is the perfect average where a trader would have enough free range to earn good profits while also having a less-than-usual risk.

 

Scenario Using this Leverage

Let's use an example to further explain how leverage works. We shall take the same 1:200 leverage as the scenario. If you're a beginner and you invested $50 in a micro account, you'll probably find it hard to make a good amount of positions with just $50. You would need more capital in order to be able to have a fighting chance at making a decent income.

With a leverage of 1:200, the broker would be providing you a capital of $10,000. This is more than enough for a beginner to be able to learn the ropes and start making good positions. Still, the risk of incurring a loss will always remain so it's important to be extremely careful.

Leverage is a high-risk option that can cost you money. For example, if the price moves in the opposite direction of your trading scenario, leverage will actually increase the potential for losses. The greater the amount of leverage on the capital you apply, the higher the risk you must endure.

 

EndNote

Now that you understand a certain method you need to follow when choosing the best broker's leverage for micro account users, you don't need to be afraid to use leverage anymore. Like a double-edged sword, leverage should be handled with care, so consult your broker or other experienced traders if you are still unsure.

As a trader, you need to understand the advantages and risks of leverage in trading. As long as you learn carefully, you'll be able to avoid any hidden traps of leverage and be successful in winning the market.