Leverage Trading: Pros and Cons Is It Worth It? 2022

Leverage trading is something that many professional traders have their eyes on. With leverage trading, you may multiply your wins. Indeed, if you are not careful, then all your investments may blow up in your account. 

On the other hand, if you do it right, then you might end up with an actual fortune on your hands. But is the risk worth it? What are the pros and cons of it? Well, read on, and you will find out.

The Pros of Leverage Trading

Leverage trading is very popular for a good reason. Here is why most investors decide to put all of their bets on leverage trading: 

  1. Amplified Profits 

Leverage uses margins, options, and other trading instruments, multiplied by around 400 times or more. If you are amplifying the right leverage, then you can win big – very big. Some Forex brokers offer leverage up to 1:3000, so if you are willing to take that risk, you can win some good money. 

  1. Access to High-Priced Stocks

A simple cash account may not give you access to high-priced stocks – but leverage trading certainly might. There are still some risks – but if you have a good risk management strategy and begin trading with high-priced stocks, you could make a better profit.

  1. Frees Your Capital

With leverage trading, you no longer have to commit the entire value of your capital to your trades. Instead, you will only have to commit a small fraction of it. With the rest of your capital, you are free to do anything you want. This opens up your path to investments.

The Cons of Leverage Trading

With leverage trading, there are also several cons to consider. These are:

  1. Amplified Losses 

The main benefit can turn back against you. Like everything else on the market, leverage can also go off-balance. The loss potential is there, especially if you don’t have a good trading plan.

  1. Multiple Fees

Compared to other trading fees, leverage trading has more, higher fees. You have margin rates, borrow fees, and many more. If you want to get into leverage trading, then you should have relatively big capital.

  1. Give Up Ownership

Unlike shares or futures, when you are trading leverage, you no longer have the benefit of taking ownership or delivering an asset. You are only making a profit from that leverage. This means that if the market goes against you, you don’t even have an owned share to sell.

The Bottom Line: Is It Worth It?

Leverage is not the best option for every trader out there. Unless you know what you’re doing, it can be rather risky. Plus, while not all your capital is used, you still need a fair budget – mainly because you have fees to pay. Plus, there is always the chance that the stock market will go against you, causing you to sustain amplified losses. 

With that in mind, while it can be a dangerous gamble, it can also bring some big profits. It all depends on whether you have good risk tolerance or not. If you are willing to go past that risk and have a smart strategy, then leverage trading can actually be profitable.