The European Securities & Markets Authority (ESMA) has passed a regulation which will restrict Forex brokers from providing excessive leverage to traders. If this legislation is implemented, it will restrict maximum leverage that Eurozone Forex brokers can provide their clients to 30:1 (for major pairs like the EURUSD) and 20:1 (for minor pairs).
Since regulators proposed this legislation, I have been receiving emails from traders who want to know whether this is the end of Forex trading in the Eurozone.
Well, this is not the end of Forex trading for those with small accounts.
However, if traders are to stay in the game in the event that maximum leverage is restricted to 30:1, they’ll need to first understand how the new legislation will affect their Forex trading in the real world.
How to pick the best Forex leverage for $100, $500 or any account size
The new legislation, if implemented, will be a double edge sword. On one hand, it will favor conservative traders who don’t like taking huge risks. On the other hand, it will restrict traders with a small account, even if they know how to trade.
In the midst of this uncertainty, it would be necessary to learn a few things as far as best Forex leverage is concerned.
The simplest rules of leverage are as follows:
- Accept to trade with low leverage
- The use of trailing stops will help preserve your trading capital
- Limit the amount that you will be risking with reference to your trading capital. I cannot say your risk should be 2% or 5% of your trading capital. It depends with the percentage of risk that you are comfortable with.
A leverage of 50:1, 30:1 or 10:1 would be ideal if you are a conservative trader. In essence, the new legislation will not affect this group of traders.
Will it affect small Forex accounts?
If regulators actually implement it, will this affect a trading account worth $100 or $500? The answer is yes. You will be able to trade less volume, and thus less returns if other factors are kept constant.
P.S: This news is most likely saddening to those who have a small account. If this sounds like you, I implore you to look into my trading course where I recently gave a tutorial of how to trade and make profits even with low leverage.
In this training, I teach my students the principles of successful trading in addition to what they must do in order to compound and grow their accounts faster.
Note: If you are a Forex beginner, please watch the video below in order to understand what leverage is and how it affects you. If you have any questions, don’t hesitate to contact me.
Author: Warren Ouma
Warren Ouma is a highly regarded Trader, Author, Critique, Blockchain analyst, Investor & Coach with over 7+ years experience trading the financial markets. He currently mentors students from various parts of the word. In 2014, Warren won the Million Dollar Trader Competition, achieving an impressive 250% return. Warren regularly contributes to well known financial websites and publications including Valforex.com, Investing.com and MoneyShow.