Many Forex traders opt to use financial leverage while trading in the Forex market because of its various pros. However, some traders prefer to trade and invest with their cash because of different reasons.
Contrary to popular belief, there is a good number of benefits of forex trading without leverage. This comes with several operational differences from the conventional way, which involves leverage.
Differences between trading with leverage and trading without leverage
As opposed to leveraged trading, trading without leverage does not use borrowed money. Thus traders use their own money as opposed to using deposit-secured loans by their brokers.
No leverage trading essentially requires a large amount of capital to set up and trade effectively. On the other hand, leveraged trading requires just a deposit which varies from broker to broker. This does not have to be a huge amount of capital since they are given trading loans by brokers.
No leverage trading has a low risk as compared to leveraged trading. Small fluctuations in the market affect leveraged trading to a higher degree than its counterpart; thus, the risk of going at a loss is heightened.
Who is most suited to trade without leverage?
Trading without leverage is most suitable for those with huge capital. This is because most brokers and traders use a 1:1 leverage which would not be profitable if small deposits are used. Trading without leverage is ideal for three types of traders. they include
- Traders investing in volatile instruments
- traders with big cash reserves
- Large financial institutions
It is not suitable for retail traders, though. This is because most of them do not have large amounts of disposable income. Thus, they are not able to increase and average their positions, open more than one to two trades or diversify their portfolios.
Trading forex with no leverage.
Effectuating the trade is normally a very easy process as outlined below:
- Do proper research and market analysis, then decide if trading without leverage is the best option
- Look for a good broker that supports non-leverage trading or big accounts and open an account with them. Most of it is usually online, and the registration process is simple.
- Choose a 1:1 leverage. It will automatically reflect that you are trading with no leverage.
- Selecting a favorable deposit plan is the final step. After that, investment can begin.
Advantages of trading in forex without leverage
There are several benefits associated with this form of trading. First of all, traders can easily calculate and deduce the profit margins of a trading plan. Return on investment is easily calculated because the leverage is 1:1 making it pretty much straightforward. Furthermore, management of the funds is easy because the capital is always the same.
In addition, there is a minimum risk when trading without leverage. The loss will be one-to-one and dependent on the amount of capital the trader actually has. That is because traders use the actual amount of money they have as opposed to loans by brokers.
Another advantage is that traders can escape the technical errors associated with overexposure. If a trader does not have enough money to trade, they will not be allowed to trade by the brokers because they will lack collateral, in this case, leverage.
Again, traders are able to stay in positions much longer when trading without leverage. This is because there are broader stop losses, and trends are easily predicted. That results in a higher average trade which in turn reduces the effect of spreads and commissions.
Trading on forex without leverage is different from trading with leverage in quite a number of ways. It works in different ways and has advantages as well. In terms of suitability, it is suitable for traders who have big balances in their accounts and those who want to increase their trading experience without losing the deposit as well.