Is leverage really a "double-edged sword"? 🎯

Quick Update: If you're a crypto or forex trader, surely someone has told you “leverage multiplies your profits” — but the truth is a bit more complicated than that.

The Simple and Harsh Truth

Leverage simply means = Borrowed funds from the broker to increase the size of your trade. For example:

• If you have 1000 dollars and use a leverage of 1:500
• You are effectively controlling $500,000 of market exposure

Is it true that you can earn 500 times your profits? Absolutely true. But you can also lose 500 times your losses.

Difference: With Leverage vs Without Leverage

Notice the difference? Profits and losses together.

It's not a loan like bank interest

A very important thing: leverage is not a regular loan in the sense that you won't owe the broker for the rest of your life.

What's actually happening:

• Your deal opens with a large size.
• If you lose and your balance is exhausted = the broker will automatically close your position (Forced liquidation order)
• Your loss is limited to your balance only (You will not owe any additional money)
• Interest fees only when converting the transaction to the second day ( and it might be in your favor sometimes )

What is the best leverage to use?

Answer: It depends on your trading style.

Positional (Positional) = Long-term trades

• Use low leverage: 1:5 to 1:20
• Reason: The market can fluctuate, the likelihood of stopping the loss is higher.

Scalper/Day Trader (Scalper) = Quick trades within minutes

• Use high leverage: 1:50 to 1:500
• Reason: Small movements with quick profits = need high leverage for profits to be significant

The Golden Rule:

The longer the duration of the trade = use less leverage The shorter the duration of the trade = use a higher leverage

The Real Benefit of Leverage

1. Expanding Purchasing Power = Control larger assets with less capital
2. Profit Amplification = Bigger returns on your small investment
3. Capital Flexibility = What you need to deposit large amounts from the beginning

But the bitter truth:

High leverage = very high risk. Statistics say:

• 90% of new traders lose their money in the first months
• Most of them are due to high leverage without a strategy.

The Golden Advice:

• Start with a low leverage of (1:5 or 1:10)
• Test your strategy in a demo account first
• Gradually increase the leverage as you become a professional.
• Always use stop loss ( loss stop order )

Summary:

Leverage is a powerful tool but a double-edged sword. It can enrich you or bankrupt you depending on how you use it. The difference between a successful trader and a losing trader is often risk management and reasonable leverage, not the perfect market prediction.

Remember: huge quick profits = huge quick losses of the same size.