“With leveraged products, financial market investors can have a greater market exposure without necessarily having to increase the amount of capital invested. Leverage means borrowing. You are given a loan by your broker so that you can open larger trades than what your account balance would allow you to open. Every financial asset that gives you the chance to place an order that is larger than your invested capital is a leveraged product.” These are the wise words from one of Wilkins Finance’s finest advisors.
However, in most cases, the leveraged products will need an initial portion of any position before you are given the rest of the money. You will have to commit some funds into a position for the broker to leverage that position. In most cases, this is usually done automatically and the only thing that you see is that you trade has been placed. But it is usually good to learn how to calculate the amount needed and the leverage needed so that you can be able to plan your trading well.
Leveraged products are usually good for novice traders as well as financial market traderswith little amounts to invest. There are different leveraged products and they all behave differently. All have different features although they may also have a lot of similarities.
The main traded leveraged products includeContract for difference (CFD), Options especially the Binary Options and Forex. The CFDs and Forex products are usually provided by similar brokersand their trading platform and mode of trading are similar. However, the options are provided by a different type of a broker and their trading platforms well as the mode of trading is different from that of Forex and CFDs.
Even with the slight differences, there are similar ways of increasing your earnings when trading the leveraged products. Below are a few ways how you can do this:
Avoid overweighting the exposure
Even if you are loaned to open positions, you should ensure that you do not open too many positions. You should also not open positions with very large lot sizes since that will end up overweighting the exposed funds and any slight market movement could result in huge losses. You should learn to have few open trades and also trades that have lot sizes that are manageable depending on your account balance.
You should remember that leveraged products are two-edged. They can be very rewarding and at the same time risky. The same multiplying factor that applies to the profits also applies to the losses and if your trade ends up being on the wrong side of the market, you will end up losing a lot of funds.
Always use stop levels
Every leveraged products position that is opened should be backed with stop losses. The stop levels should also be set at very reasonable levels. The take profits should be set at a level where you are sure the markets will rich since you want to close the order before the trend reverses.
For the stop loss, you should place it at a level where you will not have risked too much since there could also be a probability that the trade could end up closing as a loss. When setting the stop levels, you should have time in mind. You have to have a set time limit that is a very reasonable period of time when you would want the trade to close. You can be guided by news releases when setting this timeline. You do not want your position to be found open by the market news especially if you are not sure of whether the position is in favour of the market news.
To better manage the risk involved, you can choose to use trailing stops. The trailing stop levels will help you lock your profits and also prevent the profits from turning into losses in case the market trend changes along the ways. The trailing stop can lock every profit that your trade registers, especially after the first target is hit. However, even with the trailing stop, you should still use a stop loss level in case the first target of the trailing stop is not hit.