Leverage is a powerful financial tool used by traders to increase their purchasing power in the markets. When trading on platforms like Pocket Option, leveraging allows traders to amplify their returns by controlling larger positions than their actual capital investment would permit.
However, it’s important to understand both the benefits and risks associated with using leverage, especially for beginners. This guide covers how to use leverage on Pocket Option along with important details like costs and risk.
Pocket Option Leverage Conditions
When trading on Pocket Option, you should understand the different leverage options available and the conditions under which each can be applied. Below is a table that outlines the leverage conditions offered on Pocket Option.
| Maximum Leverage | 1:1000 |
| Min Volume | 0.01 Lot |
| Maximum Volume | 100 Lot |
| 1 Lot Size | 100,000 EUR |
(Risk warning: You capital can be at risk)
How to Trade With Leverage on Pocket Option
To trade with leverage on Pocket Option using MetaTrader 4 (MT4) or MetaTrader 5 (MT5), follow this specific, streamlined process suitable for trading forex or CFDs:
Step 1: Set Up Your Trading Account
Create or log into your Pocket Option account and click the trading icon on the left side of the screen. Then either press Forex MT5 or MT4, depending on your preferred platform. This will open the trading interface.
Step 2: Choose Your Trading Instrument
Now, choose the asset you want to trade. You can do this by clicking the currency pair at the top left of the screen. A drop-down menu will open with a list of different available assets such as currencies, crypto, commodities, oils, stocks, and indices. Click on the CFD or forex pair you are interested in trading.
Step 3: Configure Your Trade
On the right side, you will see the option to buy or sell the asset. Based on your prediction, choose the suitable option. Then, input the volume of lots you want to trade and set the conditions. You can set take profit, stop loss, movement, and closing price.
(Risk warning: You capital can be at risk)
Step 4: Execute the Trade
After reviewing all trade parameters and ensuring everything is aligned with your trading strategy, execute the trade by clicking ‘Buy’ if you anticipate the value of the currency or CFD will rise, or ‘Sell’ if you expect it to fall.
(Risk warning: You capital can be at risk)
Bonus Steps: How to Trade via MetaTrader WebTerminal
If you want to primarily trade forex you have the option to sign in the MetaTrader terminal and trade within the platform. This allows you to change the leverage, use various charts, and utilize different indicators.
Step 1: Open The MetaTrader Terminal
Sign in to Pocket Option, press ‘Trading’, and choose Forex MetaTrader 4 or 5. Then, click the MetaTrader icon on the left side of the screen (it’s above the dollar sign). This will open the MetaTrader web terminal. Sign in to open the trading interface.
Step 2: Choose Forex Pair
On the left side, you will see a list of forex pairs you can trade. Right-click any pair to configure the trading screen so you can see the chart history and other necessary information.
(Risk warning: You capital can be at risk)
Step 3: Change Leverage
At the top of the terminal will be a settings icon that you can open to customize the trading settings. Here, you can adjust the leverage ratio to your preferences, account currency, and more.
Step 4: Create the Trade
After you have configured the trading settings, you can return to the web terminal and select the forex pair to trade. Double-clicking any pair will open the trading interface, where you can change the volume, stop loss, take profit, and trade type. You can also decide whether to sell or buy the forex pair.
Step 5: Trade
Finally, after setting the trade parameters review the order to ensure every detail is correct. Then press ‘Buy’ or ‘Sell’ to execute the trade.
(Risk warning: You capital can be at risk)
Risks of Leverage:
Leverage can significantly increase the potential for high returns in trading on platforms like Pocket Option, but it also introduces substantial risks that every trader must understand. Here is a detailed examination of the key risks associated with using leverage:
Amplified Losses
The primary risk of leverage is that it amplifies losses just as it does profits. For instance, if a trader uses a 1:100 leverage ratio, a small adverse move in the market can result in a 100 times greater loss compared to trading without leverage. This can quickly deplete the trading capital.
Margin Calls
When the market moves against a leveraged position, the trader may face a margin call, which requires additional funds to maintain the open positions. If the trader fails to meet the margin requirement, the broker may close the position, resulting in a significant loss.
Increased Volatility
High leverage can make a trading account more susceptible to market volatility. Small price fluctuations can have outsized impacts on leveraged positions, making it crucial for traders to stay responsive to market movements.
Overtrading
The availability of leverage can tempt traders to open more positions or larger positions than their capital would typically allow. This overtrading can increase exposure to risk and lead to poor trading decisions driven by the potential for higher returns rather than sound trading strategies.
Psychological Pressure
The use of leverage can also put additional psychological pressure on traders, as the stakes are higher. This can lead to emotional trading decisions, such as chasing losses or not sticking to a trading plan.
Market Gaps
Market gaps occur when the prices jump significantly from one level to another without any trades occurring in between, often due to market news or events happening outside of regular trading hours. For leveraged positions, this can mean sudden and substantial losses if the market gaps beyond stop-loss orders, which might not be executed at the intended levels..
Liquidity Risks
High leverage might expose traders to liquidity risks. In fast-moving markets, there might be a significant difference between the expected price of a trade and the actual price at which the trade is executed (slippage). This risk is more pronounced in leveraged positions, as the size of the orders can magnify slippage effects.
Costs
When trading with leverage on Pocket Option, traders need to be aware of various costs that can affect the profitability of their trades. Understanding these costs is helpful for effective trading and financial management. Here’s a breakdown of the primary costs associated with leveraged trading on this platform:
Spread Costs
The spread, which is the difference between an asset’s buy and sell prices, is a significant cost in forex and CFD trading. With leverage, while the profit potential increases, the cost of the spread also effectively increases because you are trading larger amounts than your initial investment.
Margin Costs
When opening a leveraged position, a margin requirement will be associated. The required margin must be maintained at all times, and if your account balance falls below this level due to trading losses, you will need to add funds to avoid a margin call. This requirement can tie up capital that might otherwise be used for other trading opportunities.
(Risk warning: You capital can be at risk)
Binary Options vs Leverage Forex Trading on Pocket Option
Trading on Pocket Option offers two distinct methods: binary options trading and leveraged forex trading. Each has unique features and suits different trading strategies and risk tolerances.
Nature of Trading
Binary Options trading on Pocket Option involves predicting whether the price of an asset will rise or fall within a predetermined timeframe. If your prediction is correct, you receive a fixed payout; if not, you lose your initial stake. This form of trading is straightforward and has defined risks and rewards.
In contrast, leveraged forex trading involves buying and selling currency pairs with the option of using leverage to increase potential gains. This type of trading allows for more complex strategies and adjustments like setting stop losses and take profits.
Risk Exposure
The risk in binary options is confined to the amount invested in each trade, eliminating the possibility of losing more than what was initially put into the trade. Leveraged forex trading, however, can lead to losses that exceed the initial investment.
Profit Potential
Binary options provide a fixed return, known upfront, typically a percentage of the initial investment. This setup makes it easy to understand the potential outcome before entering a trade. Leveraged forex trading, on the other hand, offers the potential for considerable profits depending on how the market moves, but this also comes with increased risk.
Time Frames
Binary options are geared towards those who prefer quick results, with trade durations ranging from a few minutes to several hours. Forex trading with leverage offers more flexibility, allowing traders to hold positions for a longer duration – from hours to days or even weeks – depending on their trading strategy.
Skill Level Required
Binary options are often seen as more accessible for beginners due to their simplicity and fixed risk. Leveraged forex trading demands a more in-depth understanding of the markets and active management, making it more suitable for traders with more experience or those willing to commit the time to learn.
Market Analysis
The approach to market analysis differs significantly between binary options and leveraged forex trading. Binary options traders often rely on technical analysis tools for quick decisions but may not dive deeply into underlying market fundamentals. Conversely, successful forex traders usually combine both technical and fundamental analysis to make informed decisions, especially considering that leverage magnifies both gains and risks.
Financial Commitment
The financial commitment can also differ. Binary options trading can often be done with lower initial capital compared to forex trading, where the financial requirements can be higher, especially when considering the margins required for leveraged positions.
Conclusion
In conclusion, using leverage on Pocket Option provides traders with the opportunity to amplify their trading capacity and potential returns. However, you should approach leverage with a clear understanding of its risks and costs. Traders must choose their leverage ratio wisely, adapt their trading strategies to suit their risk tolerance, and continuously manage their trades with risk management practices.
(Risk warning: You capital can be at risk)
