Hi It's Unicorn

Leveraged trading is more risky because the loss may exceed your initial deposit. However, there are many risk management tools that can reduce your potential loss. The following are risk management tools.

Stop Loss Order

A stop-loss order works by automatically closing the position when the price hits a pre-determined level. However, in a volatile market, it may not trigger your stop loss at the price you set in some situations.

Guaranteed Stop Order

Guaranteed stop order works in the same way as stop loss, and will be executed at your exact preferred price. Its features to force the position to close at your chosen price even if the market price surpasses it. Once your stated level is reached, the position will automatically close. Guaranteed stop order isn’t available for all instruments, and you also need to pay a premium for the spread.

Negative Balance Protection

Your available balance may become negative. This occurs when all your available balance is invested in open positions and overnight fees are deducted, or trading losses are incurred. Some brokers may guarantee your loss will not exceed the available assets in your account.

Using stop loss order is a common way to reduce leverage risk, but there are many available tools can be used, including price alerts and limit orders.

What is the leverage ratio?

The ratio of position size and margin is the leverage ratio. Leverage ratio is an indicator that measures the ratio of total trading exposure to margin requirements. Different instruments will have different leverage ratio. It depends on the market you are trading, and the size of your position. 

The following is how different levels of leverage affect your risk exposure (thus affecting potential profit and maximum loss), with an initial capital initial funds USD$1000:

For instance, a 20% margin requirement means that your initial funds is USD$1,000 and you have an investment risk exposure equivalent to USD20,000. This leverage ratio is 20:1.

In order to protect your position from high price fluctuations, high volatility or the lower liquidity of the underlying market, the lower leverage ratio will be provided. On the other hand, highly liquid markets may have particularly high leverage ratios.