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Top risk management strategies in forex trading – IG


Get a grasp on leverage

When you speculate on forex price movements with spread bets or CFDs, you will be trading on leverage. This enables you to get full market exposure from a small initial deposit – known as margin.

While trading on leverage has its benefits, there are also potential downsides – such as the possibility of magnified losses.

Let’s say you decide to trade GBP/USD using CFDs, and the pair is trading at $1.22485, with a buy price of $1.22490 and a sell price of $1.22480. You think that the pound is set to gain value against the US dollar, so you decide to buy a mini GBP/USD contract at $1.22490.

In this case, buying a single mini GBP/USD CFD is the equivalent of trading £10,000 for $12,249. You decide to buy three CFDs, giving you a total position size of $36,747 (£30,000). However, because you’re trading the forex pair using leverage, your margin will be 3.33%, which is $1223.67 (£990).

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