Forex high leverage pitfalls: how to avoid them

The higher the leverage the less is going to be the margin percent.
Margin percent will determine the amount of capital trader needs to have on the account available in order to open and later hold a trading position. You never want your margin be lower than your floating account balance, otherwise you will receive a margin call — running trading positions will be closed automatically.
High leverage can be traded successfully if trader doesn’t attempt to trade very large positions or open too many trading positions at once.
In order to determine how large your position can be, you need to know how much you have invested and then simply calculate pip value for a position (lot size) you want to trade with.

For example, investment = $2000.
Leverage = 20:1

The size of 1 lot traded = 100 000 units.
Pip value for this lot size is $10.

Now, will it hurt losing -100 pips?
-100 * $10 = -$1000. Yes it definitely will.
Conclusion, the $100 000 lot size is too much for such small investment of $2000.

One may try lowering position size to 10 000 units.
The cost of one pip then will be $1.
Now, will it hurt losing -100 pips?
-100 * $1 = -$100. It will, because it is still a loss, but this loss is well sustainable.

Still, if you have an option to trade even smaller lot sizes, for your case it would be good to start with a lot of 5000 units (1 pip = 50 cents) and then get a feel of whether you are prepared to risk more money, or at this stage you’ll be comfortable with smaller losses to keep your beginner spirit high.

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