There is no other market in the world with the same buying power, or leverage possibilities, as that of the foreign exchange market. But the reason the foreign exchange market is so leveraged has nothing to do with the extreme risks traders take. No, it has everything to do with how relatively boring the forex market actually is.
Breaking it Down
When I say that foreign exchange markets are boring, I mean that at the basis they’re actually lacking in volatility. Sure, you may hear about traders doubling their cash or losing it all in one day, but you’re also hearing about cases where traders have used highly leveraged accounts. Without leverage, the foreign exchange market would be one of the least profitable.
Consider this: A 250 pip move in the GBPUSD would be considered a highly, highly volatile day. That bar would stand out on any chart, regardless of perspective and timeframe. However, that 250 pip move is a 1.6% move. And that is a crazy day!
Compare those kind of numbers to, say, the stock market, which can move 2-3% without making headlines and you’ll see why I say foreign exchange is boring without leverage.
So How Much Buying Power Can I Get
Retail foreign exchange traders have more access to increased buying power than do professionals, and can generally leverage up as high as 400:1. Typical leverage amounts are anywhere from 10:1 (for long term investors) to 200:1 (short term day traders) to 400:1 (gambling addicts).
At 400:1, a trader could own as much as $100,000 worth of currency with a $250 deposit and make or lose $10 with every pip move in a USD denominated pair. That is, if a USD pair were to move just 5 pips, a move that happens every few minutes
