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Forex Trading Without Leverage

August 4, 2020

August 4, 2020

Forex Trading Without LeverageMikhail Hypov

Leverage allows you to raise your bets on the foreign exchange market. However, novice traders often can’t use this tool successfully because of the wrong choice of the size of leverage. In the previous article [Best Leverage Ratio for Forex Trading][1], I went into detail about the pros and cons of leverage, as well as the methods for choosing the right ratio.

Today I will tell you about different types of trading without leverage on Forex in 2020.

The article covers the following subjects:

What is Leverage

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][2]

Leverage is a loan issued by a broker secured by the deposit that allows traders to open orders for amounts significantly exceeding the real amount of funds on their account.

By increasing the trade volume this way, a trader can earn large profits. But possible losses grow in proportion to the possible profit. For example, if you trade with a leverage of 1:100, by investing $1 of your own money, you can open orders for $100.

Read more about what leverage is and how it works in [this article][3].

Leverage example

For clarity, let’s compare the potential profit and loss of a long position on the foreign exchange market in a live account of 1,000 USD with and without leverage.

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][4]

Why Trading With Leverage Could Be Dangerous?

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][5]

From the example above, it may seem that the larger leverage the better, because with the same dynamics we will earn more money. At the same time, our losses are limited only by the money in our account. However, it’s not so simple.

First, you do not run the risk of losing money only if the broker gives this guarantee and provides protection from a negative balance. By the way, one of the few brokers who gives such a guarantee to all their clients completely free of charge is [LiteForex][6].

Second, the higher the leverage, the less safety margin your position has. For clarity, let’s return to the example above and calculate the maximum drawdown percentage that our deposit of $1,000 can withstand with different leverage, provided that we open a position for the entire account amount.

Leverage

|

Maximum drawdown, %

—|—

1:1

|

100%

1:10

|

10%

1:100

|

1%

1:500

|

0,2%

As you can see from the simple table above, when trading without leverage, you can only empty your deposit in the incredible case of the asset value going down to zero. However, when trading with 1:10 leverage, the survivability of the deposit is reduced proportionally by 10 times, and at 1:500, respectively, by 500 times.

It is obvious that the probability of the market deviating by 0.2% against your open position is many times higher than 100% or at least 10%. It should be noted that the above calculations do not take into account the Stop Out %, at which open positions are liquidated. This percentage is different for all brokers and if we take it into account, the reserve will be even shorter.

Therefore, when using too much leverage, you can completely empty your deposit. It is very important to choose the optimal leverage size that allows you to increase profits and at the same time does not raise the risks of losses to a critical level. It is important to remember that with a leverage higher than 1: 1000, it will not be difficult to lose your deposit, because the price will only have to move a little bit in the direction opposite to your trade and you’ll have the Stop Out level triggered. Apart from that, leverage that is higher than 1:1000 is usually provided by various fraudulent brokers.

Can you Trade Forex Without Leverage?

Now let’s look at trading on Forex without leverage. In theory, you can make a profit without resorting to leverage. However, Forex without leverage can bring more or less tangible profit only if you have a sufficiently large deposit.

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][7]

Let’s assume that, on average, novice traders deposit $100 and use a 1:100 leverage. In order to make the same profit and trade without leverage, you need to invest $10,000. That’s a big difference, isn’t it?

It is also important to consider that currency pairs are classified as instruments with low volatility. This means it will take a very long time for the price to change significantly. Remember that even when trading exclusively with your own funds, you will still have to pay a commission to the broker, spread for opening a trade and swaps for overnight positions.

So, is it possible to trade Forex without leverage?

Important: Very often, it is impossible to trade with brokers without leverage, since they provide minimum leverage from 1:33 and higher. If you want to trade without leverage, look for a [broker][6] with whom you can open a trading account with 1:1 leverage.

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][8]

Trading with your own funds with a 1:1 leverage makes sense only in three cases.

  1. The investor trades in volatile instruments such as CFDs on [cryptocurrencies][9], [stocks][10] and [stock indices][11], [oil][12], and [metals][13]. The cost of the minimum lot in these instruments is usually lower than on the foreign exchange market. And the higher volatility allows you to earn a significant percentage even without using leverage.

  2. The starting capital that a trader has at his disposal is more than 10,000 USD. It makes little sense to trade with smaller volumes without leverage, since you cannot open more than 1-2 trades, diversify your portfolio, increase and average your position.

  3. The trader is institutional. I’ll talk about these guys below.

Institutional Trading

You’ve probably heard of institutional traders. How do they differ from ordinary traders and why do they not use leverage, unlike most other speculators?

In order to answer these questions, we first define who are institutional traders? These are companies - large investment, pension and insurance funds, banks or entire credit unions that invest millions and billions of US dollars in securities and other assets in order to generate profit. Some of the largest institutions are BlackRock, Fidelity Investments, Vanguard, and State Street Corporation. In total, these four funds own almost 90% of the shares in the [S&P 500][14] index and 40% of the shares of the entire US stock market.

It is obvious that an institutional investor is a collective term. This word refers to companies with a huge staff of analysts, traders, lawyers, and economists.

So why don’t institutional traders use leverage?

There are two reasons:

  1. Institutional Traders manage truly enormous capital (hundreds of millions and billions of dollars) and can attract almost any money for their trading. They don’t need loans from the broker.

  2. None of the broker liquidity providers are able to provide the institutional trader with leverage due to the sheer size of positions. Moreover, usually institutional investors themselves act as liquidity providers.

Despite the fact that institutional traders do not use leverage, they make huge profits. How? It’s simple.

On the one hand, institutional traders work directly on the marketplace, which reduces transaction costs and overheads. On the other hand, thanks to their direct presence in the market and a huge analytical apparatus, institutional investors see the picture of the market in the most complete and transparent way. They are one step ahead of the private investor, which allows them to maximize profitability.

Institutional traders don’t need brokers. Such trading is accessible for a narrow circle of professionals who have access to large amounts of money and are able to trade with high profitability without leverage.

Is it Possible to Trade CFDs without Leverage?

Now let’s talk about trading CFDs without leverage. Trading stocks without leverage differs from trading on the Forex market, both in terms of mechanism and potential profit.

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][15]

First of all, I should note that the concept of leverage is not applied to CFDs. Instead, a percentage margin is used, which is calculated with a special formula. The percentage of margin is different for each broker and is calculated based on the conditions set by the liquidity providers.

You can read more about how leverage works for different types of assets [here][3].

The amount of margin for shares is calculated as follows:

Number of shares × value of one share × margin percentage.

Let me give you an example. Suppose that a trader buys a contract for 100 shares of [Pfizer (see a detailed breakdown of this security here][16]) at a price of $35 per share. The broker’s margin percentage is 15%.

In this case, the margin level will be:

100 × $35 × 15% = $525.

To buy shares without leverage, we would need 3,500 USD (100 * 35), and when buying from a broker, only a margin of 525 USD.

- As for trading CFDs of stocks without leverage, is it possible?

- Yes. It turns out that it is not only possible, but can also bring a very good profit.

Stocks are significantly more volatile than currency pairs. The average daily change in the value of a currency pair rarely exceeds 1–2%, while stocks can fluctuate by 5% or even 10-15% during a trading day.

That is why liquidity providers most often set the margin percentage at the level of 10–20%, which roughly equals the broker’s leverage from 1:5 to 1:10. Nevertheless, in the case of stock trading without leverage, one can get great profit due to the high volatility of shares. And since you don’t trade in the security itself, but a contract for the difference in prices for this security, you can buy long or short positions.

No Leverage Day Trading: Pros & Cons

Let’s compare the advantages and disadvantages of day trading without leverage on Forex.

Advantages

|

Disadvantages

—|—

1.         Minimal risks. The loss will be one to one and will only depend on changes in the value of the trading instrument.

|

1.          Low profitability. On the foreign exchange market, the average range of price fluctuation is at the level of 0.5-1% per month. It is difficult to get big profits without leverage on Forex.

2.         High entry barrier. It is almost impossible to trade with a deposit of less than $1,000.

3.         Low purchasing power of the account. Due to the large size of contracts, when trading forex with 1,000 USD, you can open 1-2 positions. You need a deposit of no less than 10,000 USD for real trading.

4.         All the costs associated with margin trading are still there. Even with a 1:1 leverage, trading with a Forex broker is still margin trading, and therefore, broker commissions and swaps will apply.

For clarity, I will give an example that is as close to reality as possible.

Input data:

  1. Initial deposit - 10,000 USD

  2. Leverage - 1:1

  3. We buy the maximum possible contract size for EURUSD

  4. Investment term - 1 month.

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][17]

Since it is trading at 1.16555, the maximum standard lot size for a contract of 100,000 units under the above conditions is 0.08.

Therefore, the price of one point is $0.08. In this case, the margin will be 9,324.4 (100,000 * 1.16555 * 0.08).

We still have a balance on forex account of unused USD 675.6, which will be dead weight, since without leverage, these funds will not be enough to buy even a minimal contract.

Let’s assume that we are lucky and the price of the[EURUSD][18] has increased by 1% in a month. So we exit with a profit by closing at 1.17731. As a result, in a month of currency trading, we get a profit of $93.24 minus spread (11 * $0.08) minus average buy swap multiplied by the number of days of the open position ($0.5 * 30). Minus all commissions, we get a net income of 77.36 USD, and this is with a total deposit of 10,000 USD!

Considering the risks associated with trading and the need to constantly be involved, a deposit in a bank looks like a fairly adequate alternative to such an investment. But only if there is no leverage. With leverage, the margin will become smaller and you will be able to open positions in larger volumes, where profitability above 100% a month is quite real.

Conclusion: To Leverage or not to Leverage

As mentioned above, perhaps the only tangible advantage from no leverage trading is the minimum risk. However, you need to be aware that when trading 1 to 1, you will hardly be able to achieve outstanding results in terms of profitability.

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][19]

Forex trading without leverage should probably be left to institutional traders or complete newbies, for whom the main goal should be to gain valuable trading experience and not lose the deposit at the same time. As for CFDs, the high volatility of these instruments allows you to get tangible profit even without a margin.

Nevertheless, the safety of your deposit when trading without leverage is only an illusion, because you will still be paying daily fees for using margin trading without the benefits of leverage. So don’t give up leverage in order to make money on the foreign exchange market relatively safely. It will be much more useful to effectively control the size of the margin and the maximum loss per trade and for the account as a whole. Also, choosing the right broker plays an important role.

[LiteForex][20] broker offers the most favorable conditions for trading both with and without leverage. The range of leverage ratio is from 1:1 to 1:1000. Regardless of the chosen leverage, the Stop Out level will always be 20% and never more.

Margin call level is 100% for ECN accounts. That is a good level to notify you early on of insufficient free funds on your account. This will allow a trader, provided that he responds to the warning in time, to save his trading capital.

At the same time, ECN technology provides direct access to liquidity providers, which guarantees minimal spreads and swaps. Negative balance protection will insure you against unexpected losses. The number of open positions and their duration are not limited at all, which provides trading opportunities to both scalpers and traders with long-term investment horizons.

Beginners might be interested in [copy trading][21] - the ability to automatically copy trades from more experienced traders with high profitability rates.

A nice bonus to all the above is that at the end of each trading day LiteForex credits 2.5% per annum on funds not used in trading.

So can you trade Forex without leverage? My personal opinion is that trading without leverage makes sense only in CFDs, only with ECN and negative balance protection.

I have compiled a selection of the most interesting opinions of other bloggers think about trading without leverage:

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][22]

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][23]

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][24]

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][25]

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][26]

![LiteForex: Forex Trading Without Leverage: Ultimate Guide | LiteForex][27]

Trading Without Leverage FAQ

What is the best trading platform without leverage?

The best trading platform is one that:

  • has earned the trust of users over the years,
  • is known around the world and has a network of representative offices all over the globe,
  • provides many trading instruments in various markets,
  • offers good flexible rates,
  • provides client support 24⁄7,
  • offers free training materials and courses,
  • helps the client and is interested in their success.

Whether you are looking for a Forex broker without leverage or otherwise, you can spend days and months searching for the best broker. You can make your own conclusions after spending a lot of money and time.

Personally, I made a choice to work with LiteForex. It meets my personal requirements and satisfies all of the above points. LiteForex is #1 for me!

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

  • I recommend trying to trade with a reliable broker [here][28]. The system allows you to trade by yourself or copy successful traders from all across the globe.
  • Use my promo-code BLOG for getting deposit bonus 50% on LiteForex platform. Just enter this code in the appropriate field while [depositing][29] your trading account.
  • Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders

![Forex Trading Without Leverage][30]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. www.liteforex.com/blog/for-beginners/forex-leverage/best-leverage/
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  9. my.liteforex.com/?type=crypto
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  14. my.liteforex.com/trading/chart?symbol=SPX
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  16. www.liteforex.com/blog/analysts-opinions/fundamental-and-technical-analysis-of-pfizer/
  17. cdn.liteforex.com/cache/uploads/blog_post/blog_posts/torgovlya-na-foreks-bez-kreditnogo-plecha/trading_without_leverage_hypov_6.jpg?w=30&s=d27facebf50758f1f860a9e69d62d1b8
  18. my.liteforex.com/trading/chart?symbol=EURUSD
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  20. www.liteforex.com/trading/account-types/ecn/
  21. my.liteforex.com/traders?type=profit
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  23. cdn.liteforex.com/cache/uploads/blog_post/blog_posts/torgovlya-na-foreks-bez-kreditnogo-plecha/trading_without_leverage_hypov_9.jpg?w=30&s=0cfb107ba25e14008423a28eb5f9c8c3
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  25. cdn.liteforex.com/cache/uploads/blog_post/blog_posts/torgovlya-na-foreks-bez-kreditnogo-plecha/trading_without_leverage_hypov_11.jpg?w=30&s=53ef179659654d747acad0ad9aa3ac8d
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  28. my.liteforex.com/?category=for-beginners&slug=forex-leverage&slug2=trading-without-leverage&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
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