When it comes to currency trading, there are many distinct advantages that make the forex market a much better choice for individual traders. One of the most important reasons that this is the best financial market for individuals to trade is due to the large amount of leverage that most brokers will grant you.

Even if you do not understand exactly what leverage is, you should already have an intuitive understanding of it if you understand real estate. When a person buys a new house, this tends to be one of the largest single purchases that he/she will make, and it can cost as much as a few million dollars. The odds are good that the person is not going to pay that much money alone, but instead is going to work with a large bank to pay a part of the full price, and then make monthly payments until the rest is paid off.

This is the concept of OPM, or Other People's Money, and it is the concept that it at the core of trading with leverage. You put up a small percentage of all the money that is required, and your bank (with real estate) or your broker (with forex trading) will supply the rest. This concept is also the same as buying stocks on margin, because either way you are working with your broker to gain a larger amount of purchasing power.

Forex trading is the most lucrative of all financial markets because it typically offers traders the highest amount of leverage, with 1% or 100:1 leverage being the norm. Before we get in to how you can use this leverage, I want to make something very clear: many more traders will lose money due to high amounts of leverage than those who will make money with it! In fact, market maker forex brokers will often give traders leverage as high as 400:1, but most of the time what they are really doing is giving those traders more rope to hang themselves with!

If you are a savvy forex trader, you will NEVER, under any circumstances, feel the need to trade with leverage as high as .25% or 400:1 as this is way too risky. A good amount of leverage to stick with is 100:1, but you do not want to over-extend yourself in the market, so let's talk about how you can use this amount of leverage to maximize your gains instead of your losses.

Make sure you understand exactly what 1% leverage means: it means that with $1,000 you can control up to $100,000. If you are going to use an amount of leverage this high, you will want to make sure that you have a large amount of capital in your trading account, probably no less than $15,000. This way, when you place trades (and you will want to trade no more than one lot at a time until your account grows) you will be risking a much smaller percentage of your trading account than if you only had $3,000 in your account.

The key to using leverage correctly is to make sure that you are never risking more than 5% of your entire trading account on a single trade, and that you use the same number of lots on every trade that you make. The reason most traders lose money in their forex accounts is because when they enter into a highly leveraged trade, they do not have enough extra capital in their account and they are risking as much as 25% or more of their account balance on a single trade! If you can not see already, that is a bad, bad, BAD idea! Unless of course you are intentionally trying to wipe out your account, in which case you might enjoy this article.