With Forex brokers competing on who can provide the highest leverage, newbie traders can be forgiven for thinking that more is good. My experience has revealed that the less leverage that is used the greater the chances of succeeding at currency trading.
A leverage facility is, in essence, a loan facility from your broker. Forex Brokers will allow currency traders to try and maximize their earning power by using the facility. The broker allows this with the understanding that the trader will not lose any of the broker' s money. To ensure this doesn't happen, the broker will duly close all open positions (negative or positive, good or bad) once the net asset value of the trade account falls below a certain percentage.
In many cases, a margin call will wipe out at least 40% of the trader's capital. Interesting, the number of pips that qualifies traders for this grand prize of a margin call is reduced significantly the higher the amount of leverage that is used. Put another way, the higher the amount of leverage used, the easier it is to wipe out an account or at best cause a large loss. Knowing this fact, one would think that traders would treat Leveraging facilities as if they were leprous but oh no, they run to it in droves, thinking only of the 'illusive millions' that can be made trading forex.
I have found that using no more than a 3:1 leverage offers enough help for increasing profits but if that is not enough for you, you can use a stacking strategy. This strategy seeks to increase the profit potential while not increasing the risk associated with putting more money in the market. For this to work, you will need to already be in a trade that is positive but has not yet reached its profit target. When the market pulls back, enter a second trade but only after you have protected the previous trade by putting the stop loss at break-even or some other reasonable level. As you might have imagined, this will not work when market conditions are choppy or flat.