Trading is the only profession in the world that never discriminates traders based on their education, nationality, ethnicity, caste, creed, or color. The world of trading is open to everyone.
However, trading is a skill that requires an extreme level of perseverance to master. Not everybody gets the heck of it early in life. But once they do, there’s no looking back.
The biggest attraction of trading that draws people of all ages is money, real money. And, there is often no limit to how much one can earn in a day.
But earning big money requires big capital for investing, which most of us do not have. Hence, the need for leverage trading.
Go through this article to know the top secrets of high leverage trading and why industry-acclaimed trading experts always rely on high leverage trading to increase their profits.
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Contents of Post
- What is Day Trading?
- Scalping as a Tool For Day Traders
- What is Leverage Trading?
- The Top-4 Benefits of Trading With High Leverage
What is Day Trading?
The simplest answer to ‘what is a day trader?’ is someone who buys or sells stocks in the morning and sells or buys the same stocks before the market closes.
When a day trader sells a stock first and buys it later, it is known as shorting. If a day trader buys first and sells later, it is known as going long.
Trading can be of two types – day trading and positional trading. Day trading is when you buy or sell stocks on the same day, hoping to take advantage of the price movement. Positional trading is when you hold the stock for weeks, months, or even years.
Scalping as a Tool For Day Traders
Day traders often use scalping to make quick profits. Scalping is when a trader buys/sells and sells/buys a stock, all within a few minutes. They capture the quick upswing or downswing of stock to seal the profits.
Unlike a positional trader, a scalper would generally take more than 3-4 trades in a day to make the most out of the trading hours.
Scalping is proven to generate more revenue than many other trading strategies. However, to be a scalper, you must have the power of capital by your side. Scalper use high-leverage trading more than any other traders.
Hence, the two things that we learned so far are – (i) scalping is the best way to generate higher profits; and (ii) high-leverage trading is the best way to benefit from scalping.
Let us now move to understand why high-leverage trading must be on your radar if you want to utilize the stock market in the way it should be used – to give you unlimited money.
What is Leverage Trading?
Leverage trading is a special facility offered by brokers to traders who are willing to buy or sell more stocks than their accounts permits. The leverage you can get depends on the broker.
Generally, to avail of the benefits of leverage, your account must have a positive account balance of US$2,000 or more. A leveraged trader can trade up to 4 times of the available account balance. Hence, if your trading account has a balance of US$10,000, with a 4X margin, you may buy or sell stocks worth $40,000.
The Top-4 Benefits of Trading With High Leverage
1. High Leverage Trading Saves Capital
Ask any amateur trader the question ‘Can I use leverage for securing my investments?’, and, most likely, you would get a loud ‘NO’ as the answer.
Proper knowledge is what differentiates between an amateur and a professional trader. Leverage is one of such commonly mistaken concepts.
Let’s understand this with an example.
Imagine you have $10,000 in your account, and you are eyeing the stock of XYZ Industries, whose price is $100 apiece. By using the entire capital in your account, you can buy 100 stocks of XYZ Industries. If somehow, the stock goes against you, you risk losing your hard-earned money.
Now compare this with high-leverage trading. By just risking $5000 (instead of $10,000), you can buy stocks worth $20,000 (4X), which translates to 200 shares. Hence, even if the stock moves $1 apiece, you make a flat $200 from the trade.
Unlike what amateur traders perceive, high-leverage trading is, in essence, a capital protection instrument.
2. High Leverage Trading Leaves You With More Cash For Other Investments
Markets are the place to be if you want your earnings to be limitless. No other investment medium can give you so much money in such a short time as the capital markets. The more you understand the capital markets, the more it would open up opportunities for you.
Unlike unleveraged trading, leveraged trading leaves you with more cash in hand, which you can use to invest in indices, derivatives, mutual funds, bonds, cryptocurrencies, commodities, or currencies. You may also use the extra cash for finding out arbitrage opportunities.
Almost all expert investors advocate the benefits of diversification. As leverage provides you with more money in your account, you can use it to diversify your asset allocation strategy.
3. Leverage Provides Capital at Attractive Interest Rates
In the capital markets, money brings money. The more capital you have, the higher are your chances of earning money.
Amateur traders often make the cardinal sin of taking a high-interest personal loan or loan against property for funding their trading business, in anticipation of big gains. While sometimes, that might be a sure shot recipe for success, most often, it leads to miserable failures.
Compare this to the funds you get from a broker. While personal loan interest rates start from 5%, brokers like Alpaca offer you an annual interest rate of 3.75%, which factors in the EoD debit balance and not the entire amount.
4. The Higher the Leverage, the More the Flexibility
As markets are random, opportunities arise and subside by the second. Having the power of capital by your side can make you flexible enough to capture the second-to-second movement of a stock price.
High-leverage also allows you to harness the full potential of averaging. Most often, amateur traders put their money when the stock is near a peak or the bottom. As they enter the stock, it starts behaving differently.
By availing the benefits of high-leverage, you can average a stock if you are convinced of your research about the potential direction of the stock.
High leverage can be your best friend if you rely on commission-free stock trading.
Firstly, you can earn without worrying about sky-high broker charges. Secondly, higher-margin can set you off to a good start in the trading business.
Keep an eye on this space to learn strategies and techniques that can enhance your trading skills.