Leverage can be very dangerous if used improperly.Bitcoin Revolution 2 Review A common mistake that forex traders make is using too much leverage for their account size. It is tempting to use 400:1 leverage when you have a small account balance because it lets you put on big trades. However, if the market moves against your position by even a small number of pips, it can result in large losses to your account.

Lets consider an example. You open an account with a $500 initial deposit. 400:1 leverage would allow you to make a trade of $200,000 with an average pip value of $20 per pip. If the market moves against you just 25 pips, your entire account would be wiped out. Some currency pairs can move 25 pips or more in a matter of minutes.

Forex brokers make their money on the spread which is the difference between the bid and ask prices. The bigger the trade, the more the pips in the spread are worth.

For example, an initial deposit of $500 with 50:1 leverage would allow a trade of $25,000 and a pip value of $2.50. On a 3 pip spread the broker would make $7.50 on this trade. A leverage of 400:1 on a $500 initial deposit would allow a trade of $200,000 with a pip value of $20. The forex broker would now earn $60 on a 3 pip spread.
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