Close this search box.
TradesAi Banner TradesAi Banner

Use Your Real Leverage

Leverage is a term that is thrown around a lot in conversations about binary options trading, largely with reference to bonuses. Don’t know what leverage is? Here are several definitions from the internet:

When we talk about leverage with reference to trading, we are typically talking about the investing definition of the word. And in the case of binary options trading, that means we are discussing bonuses. A bonus is a sum of money that your broker loans you to trade with. While bonuses are usually referred to as “free money,” most brokers have terms which limit the use of your bonus money to trading until you achieve a particular volume turnover in your account. After that you can claim the bonus as cash.

There is a similar concept in Forex trading which is referred to simply as “trading on leverage.” In FX, if a trader trades on leverage, he or she borrows a set amount from the broker to place higher trades. This allows the trader to trade as if he or she had a much larger account. Bonuses allow you to do exactly the same thing.

Bonuses as Leverage

Imagine you deposited $500 into your binary options account to trade with, and accepted a match bonus of $500. In your account, you will see that the status of your bonus at that time reflects the fact that you have not done any trading yet. It exists as leverage only, and not as cash. You are however free to trade with it. You only own $500, but you have the option of controlling $1,000 when you place your trades.

Now let’s say you have absolutely no appreciation for what it means to manage your money responsibly. You can theoretically trade more money than you actually possess. If you want, you can invest $600 on a binary option, or $700. If you are lucky enough to win your trade, you will have more than doubled your account with a single trade.

Of course, that means if you lose your trade on leverage, you lose your entire account. Just like that, you are out of the game. If however you were lucky and were able to stay in the running, you would eventually be able to count the bonus money as cash. But only after you traded the volume of the bonus 20 to 40 times (it depends on your broker). Twenty times $500 is $10,000. That is a lot of trading before you own that money.

The bottom line here though is that bonus money is a double-edged sword. Trading on leverage can cause your account to grow by leaps and bounds … or cause it to close overnight. While you might think this means that your fate is entirely up to luck, you are actually tilting the odds against yourself by trading this way. Why? Because trading on leverage is irresponsible for the vast majority of traders. It means investing more than you can really afford on your trades. When you trade irresponsibly, you are inviting your own downfall.

But what about those other definitions of leverage we discussed? Are there ways you can trade on leverage without endangering your account, ways that do not involve bonuses? What other factors can you turn to your maximum advantage? What assets do you have on your side which you may not be utilizing fully?

Empower Yourself with Real Leverage

Instead of trading with a bonus, why not leverage other things to your advantage? Here are some types of leverage you may have which you do not even realize you possess:

Bonus money is not something you necessarily have to avoid completely. There are traders who trade on leverage and do fine, but they are a very narrow band of traders. Almost everybody who trades successfully over time trades without the use of leverage, and only invests a small percentage of their account on any one trade. Bonuses are also fine to use if you are trading just for fun, and you do not care if you win or lose. It can be thrilling to put that much money on the line, and to be able to play with money you do not have.

But for those traders who are serious about making a profit and staying profitable, bonuses are largely offered up as a temptation. And this is a case where you should resist temptation. Leverage is something we are all looking for in life. We all want to find something that can make our lives easier and more lucrative. But there are other types of leverage which are much healthier for your pocketbook than bonuses, and which can make your trading more effective.

Bonuses offer you advantages, but more than make up for them with ample disadvantages. When you leverage the experience, knowledge, and kindness of your fellow traders though, you are setting yourself up to win. And when you leverage your demo account to learn how to trade without risk, you are maximizing your advantages fully while minimizing your disadvantages. And that is what real leverage is all about.

Copyright © 2024 | All Rights Reserved