There’s an old saying used in business: “you need money, to make money”, and the same can be applied to trading. It means with little capital it will be hard for an investor to make money trading FX or equities.

Realising that most retail investors lack the capital to start a profitable trading career, several brokers offer trading accounts with high leverage, allowing investors to trade much bigger positions, otherwise impossible without leverage.

Without leverage a retail investor, trading the forex market, for example, would need an account with a minimum of US$ 1,000 to open the lowest lot size allowed (a micro lot of 0.01, or 1,000 currency units) by forex brokers.

For a mini lot of 0.10, or 10,000 currency units, a retail investor would need an account with US$ 10,000 capital and for a standard lot contract (100,000 currency units) would need to fund the trading account with US$ 100,000!

KEY TAKEAWAYS

  • High leverage forex brokers (some offering up to 1000:1) allow retail investors to trade larger volumes through an initially small balance.
  • Due to forex market regulations, online traders can only be classified as “retail investors” or “professional traders”.
  • Retail investors are restricted to a maximum leverage of 30:1 by brokers regulated by Australia’s ASIC and Europe’s ESMA and 50:1 by brokers regulated by the US NFA.
  • Traders classified as professionals can enjoy higher leverage ratios (up to 500:1), but will not be protected by the same safety mechanisms (NBP & ICF) offered to retail investors.

What is Leveraged Trading

Leveraged trading is a financial instrument used in CFDs trading, allowing a trader to use the leveraged capital of its trading account as part of its funding source.

Simply put, leveraged trading gives traders the ability to open CFD positions with larger volumes, with an initially small balance. This financial instrument has also the potential to expand a trader’s availability of trading assets.

For example, an investor wants to buy some Amazon Inc. shares, costing US$ 3,250 each. To buy even a small quantity of only 10 shares, without leverage, that would require a capital investment of US$ 32,500.

With leveraged trading, buying the same quantity of shares at that prohibitive price for most retail traders, would become much “cheaper”. In fact, with a trading account leveraged at 500:1 the trader would need just US$ 65 collateral to buy a CFD contract of 10 Amazon Inc shares!

In CFD leveraged trading the level of leverage is usually expressed as a ratio, and it represents the “fire-power” that a trader can use to buy (or sell) an asset's price. For example, if the trading account leverage is 500:1, it means that every US$ 1 (or any other account currency) can buy US$ 500 worth of any asset.

When opening a position with leveraged trading, investors should be aware that a winning position can quickly multiply the initial trading account balance, leading to higher potential returns, but there’s also the extremely high risk that it can amplify the losses.

According to statistics published by several CFD brokers, supervised by ESMA regulations, leveraged trading leads to more than 75% of the margin calls (trading positions liquidated because of high losses) suffered by retail investors, when trading CFDs, resulting in a complete loss of capital.

The underlying cause for such high percentage of losses, it’s not the leveraged trading, really, but the lack of preparation of many traders for the volatility of certain markets and, mainly, the under-capitalised trading account. A combination of market volatility, leverage and small account balance can be an explosive cocktail, one that quickly erases the dreams of riches of many novice traders. Imagine this scenario:

After a night out at the bar with some friends, and listening to the great and exciting trading adventures of one of them, a novice trader decides to take a shot at online forex trading.

Because he doesn’t know much about this volatile market, he thinks that an account with US$ 100 should do for now. Finds a broker with a low minimum deposit and offering 500:1 leverage, opens an account and does his first deposit.

The following morning, before going to work, looks at the charts and sees the GBP/USD going up. He then decides to open a long 0.20 lot (roughly US$ 56 margin, or nearly half of the account balance) GBP/USD at 1.41747.

So, he bought 20,000 currency units (worth US$ 20,000) with just US$ 56, thinking “I’ve only used more or less half of my account balance, no problem”, and he goes about with his life.

During that trading session, due to some BoE (Bank of England) negative news, the GBP/USD drops 100 pips (a very common reality) to 1.40747.

What will happen next to his trading account?

Well, 20,000 currency units losing 100 pips (minus 1 cent on the pair quote) it will represent, in reality, a loss in value of US$ 200 on the pair quote, for a 0.20 lot position!

As his account was poorly funded with only US$ 100, the broker would have executed a margin call at around 1.41247 (representing a loss in value of US$ 100) and liquidated his long position, before the account balance getting into negative territory.

Sounds familiar? That was just an example, but in addition to the natural risks with leveraged trading, investors should also analyse carefully their choice of broker, since there are many scams hidden behind such tempting profit opportunities.

Of course, the safest, and most reliable, high leverage forex brokers, are those that are regulated by a financial authority enforcing adequate retail investor protection mechanisms.

Brokers With High Leverage

The retail CFDs trading (forex, stocks, cryptocurrencies, etc.) is known for its leveraged trading possibility, and many high leverage forex brokers allow traders to open accounts with very small deposits, from as little as US$ 10, on a highly leveraged account of 500:1.

It might sound like it is a small account balance (and in fact it is, and not at all recommended), but with such high leverage ratio, a trader would be able to open an order to buy, or sell, a 0.04 lot (an incredible position size of 4,000 currency units) of the EUR/USD, for example, at a hypothetically market rate of 1.25!

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Generally, high leverage forex brokers have the advantage of offering attractive conditions for novice traders. High leverage trading accounts, usually, have no minimum deposit requirements, or, in some cases, very little amounts.

Therefore, traders are attracted by the simplicity and ease of access to the forex market, ignoring the general rule regarding risk - high leverage, by definition, means higher risk.

    A higher leverage ratio can be used to multiply the trading balance, which can lead to potentially bigger returns, yet, it will also magnify the real risk of bigger losses.

High leverage trading accounts are perceived as risky because of the real possibility of a margin call “eating up” all the funds, if things go wrong. Since novice traders usually trade without a proper money management plan, they are bound to face difficulties very soon. And mostly will blame the broker, when in reality its the trader's fault for their lack of knowledge regarding leveraged trading. 

Are brokers with high leverage riskier than others?

brokers with high leverage

Of course not. Brokers with high leverage offer different types of trading accounts that suit every type of trader. Traders and investors have access ECN type accounts, with quality executions and excellent trading conditions. Plus, high leverage only refers to specific types of trading accounts and it does not apply to all countries in the world.

For example, in Europe, up until July 2018, CFD brokers could offer any ratio of leverage to clients (100:1, 888:1, 1000:1, etc.). After careful deliberation, and in an attempt to curb the percetange of retail investors losing money with CFDs trading, the ESMA (the European authority overseeing the financial markets in Europe), introduced several limitations.

The biggest change was precisely the one regarding the maximum leverage offered by brokers to retail clients. With the new regulation, in effect since 2019, leverage to traders classifioed as retail investors, cannot exceed 30:1 for CFDs trading.

Many other reputable jurisdictions, and respected authorities, such as the US NFA and CFTC, along with a recent update from the Australia’s ASIC in April 2021, have also taken the necessary measures to limit the offered, and allowed, leverage ratios.

As we saw above, the maximum leverage for CFDs trading that a broker regulated in Europe can offer to retail investors is 30:1. Regulated brokers in US can offer a maximum leverage ratio of 50:1. Following the footsteps of Europe’s ESMA, Australia’s ASIC imposed, to the forex brokers that supervises, also a maximum leverage ratio of 30:1. Yet, some jurisdictions, and financial authorities, in other parts of the world are still allowing for high leverage forex brokers to “set shop”.

Why do traders continue to choose brokers with high leverage

If safety of funds and trade transparency are the main concerns of many retail investors, why do many traders continue to choose brokers with high leverage in jurisdictions without restrictions, thus abandoning the regulated brokers in Europe?

The answer is simple. Trading via a broker with high leverage (can also be a European broker with a branch in a more flexible jurisdiction), even an investor with a limited amount of capital can trade any financial instrument and try to achieve the same results that would require hundreds of thousands to invest.

But beware, if you want to trade CFDs online; forex, indices, commodities, cryptocurrencies and equities, with a leverage greater than 30:1 (European and Australian brokers), or 50:1 (US brokers), you should definitely consider the branch of a reputable broker supervised by a Tier-1 regulator. CFDs brokers operate via different entities and are regulated in different jurisdictions.

Also beware that some brokers (or their branches) are not subject to any regulation in other jurisdictions, or have very little to comply. To clarify, if broker X is supervised by a Tier-1 regulator, such as Europe’s CySEC - who imposes a Negative Balance Protection mechanism and an Investor Compensation Fund by default to regulated forex brokers – it doesn’t mean that broker’s X branch in the Seychelles, and offering 1000:1 leverage, will have the same protection mechanisms offered by the 30:1 leverage branch in Europe.

To conclude, check out our list of brokers with high leverage. This list represents our choice of brokers, based on the user ratings, how other traders rate each broker for their products and services, and for their regulatory status.