February 2009

Recently I received several emails about a proposal to limit the leverage available to U.S. Forex traders to 1.5 to 1.  One of the main reasons that Forex trading is so popular today is  because of the high leverage with 100:1 being standard and 200:1 or even 400:1 available through some brokers.  This enables traders to open accounts with a small amount of capital and realize profit on trades that control a much larger amount of capital.   For instance a Forex trader can open an account with $5000 and enter a trade with only 5% of the capital at risk and if the trade is profitable by 100 PIPS, $500 could be earned in one day which is, of course, a 10% return on capital in one day.  Many Forex traders are willing to accept the risk of loss in order to learn to realize this kind of profit consitently over time.

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