Why does Friedberg Direct encourage lower leverage?
When you use excessive leverage, a few losing trades can quickly offset many winning trades. To clearly see how this can happen, consider the following example.
- Scenario: Trader A buys 50 lots of USD/JPY while Trader B buys 5 lots of USD/JPY.
- Questions: What happens to Trader A and Trader B account equity when the USD/JPY price falls 100 pips against them?
- Answer: Trader A loses 41.5% and Trader B loses 4.15% of their account equity.