What Are Traders’ Opinions on Leverage Limit when Choosing a Broker?
There are hundreds of forex brokers in the market, but only a few are worthy of holding your funds. Very few brokers are providing their clients with the right environment and conditions to succeed and grow. Countless brokers are claiming it and then acting as slot machines behind the curtains.
Being able to differentiate between those really doing it and those just claiming it plays a crucial role in any trader’s success. And of course the leverage limit becomes an inevitable consideration.
What are traders’ opinions on leverage limits when choosing a broker? Here are what we collect.
#1 A global imposition of leverage may set a dangerous precedent
Some traders have their doubts — don’t people think a global imposition of leverage may set a dangerous precedent? They would rather see people get educated and make decisions freely at their own risk.
#2 Limited leverage would limit people losing large sums with little skill
On the other hand, there are also traders who prefer limited leverage. Their personal preferences are that they would personally prefer to err on the side of caution. There is a case for limiting certain actions/freedoms in societies. Total freedom is not allowed and sometimes for good reasons. . So, speed limits on roads lessen the potential impact of a crash. Yes, there are F1 drivers who drive at huge speeds, but they are more skilled and well equipped than normal road users.
In a similar way, they would prefer if leverage was limited further (it is already limited to some degree anyway) than current levels — at least for standard and new accounts. This would limit people losing large sums with little skill.
The 90–90–90 rule springs to mind. 90% of new traders, lose 90% of their money in their accounts, in their first 90 trading days. So, limiting leverage may move part way to stop that horrible statistic.
#3 High leverage is fatal for new traders
Speaking about new traders or amateurs, it makes sense that high leverage is fatal for them.
But as mentioned in the above example, there are F1 drivers who are skilled to drive at very high speeds. They tend to be allowed to reach their maximum potential at their own risk.
#4 Retail traders move to offshore jurisdictions under leverage limit
when it comes to decreased leverage, it is just like giving medicines for the fever and not curing the infection. What happened in Europe when ESMA decided that max leverage for retail traders must be 1:30? As traders can learn from the market, retail European traders moved to offshore jurisdictions and even worst, to unregulated brokers.
#5 A global co-ordinated lowering of leverage levels is good for all traders
A long track record in the markets, relevant regulation, and market education is key.
In general, investors would like to see a global co-ordinated lowering of leverage levels for all retail and professional traders. Too much leverage is often the root cause of most serious trading problems.
Leverage really matters in your trading life and it somehow differentiates the reliable regulated forex brokers from unlicensed forex brokers. No matter there is a limit on leverage levels or not, more education and more risk management are the must things you should take into consideration when you choose a broker.
Original post from BrokersView.com