Brokers With Low Leverage

Brokers with low leverage reduce risk when trading derivatives, making them an ideal starting point for beginners. This guide explains how trading with low leverage works and examines common leverage ratios and models. Read on for a list of the benefits and drawbacks of trading using lower leverage accounts. We have also ranked and compared the best companies and brokers with low leverage in 2022.

How Does Leverage Work?

In basic terms, leverage trading works in a similar way to borrowing. Your broker lends you money to open larger position sizes, and in turn, you can make a greater profit.

Leverage is often shown as a ratio which represents the balance of the loan capital (from the broker) to the value of the full equity (the amount the trader invests).

For example, a broker offering 1:5 leverage means for every $10 invested, you can borrow up to $50. This gives traders the chance to multiply the results of a trade.

Importantly however, trading on leverage can magnify losses. So in highly volatile markets, such as cryptos, you can use lower leverage to protect yourself from losing money quickly. This is also why brokers with low leverage are popular with traders starting out.

Examples

Let’s say a trader starts with a $100 deposit, and their broker offers a 1:10 leveraged ratio on commodities. This means that they can trade in positions up to ten times the value of their available balance, so a maximum of $1000.

They invest $1000 in crude oil and the value of crude oil rises by 10%, so the trader earns $100 in profit ($1000 * 1.1 = $1100). However, if they had purchased $100 worth of crude oil without leverage on the same trade, their profit would be $10 ($100 * 1.1 = $110).

Brokers with low leverage definition and meaning
Axi: Leveraged Trading Explained

Alternatively, say a trader has a $100 deposit and their broker offers higher leverage at 1:100. They invest $10,000 ($1000 * 100) in Apple stocks but the value of the stock plummets by 10% so the trader loses $1000 ($10,000 * 0.9 = $9,000), 10 times their initial deposit.

So, while leveraged trades can magnify your profits, brokers with low leverage can help avoid larger losses.

Note, the examples above do not take into account any fees you may have to pay to trade on margin.

What Is Considered Low Leverage?

Generally, low leverage is considered to be below 1:30. However, leverage can vary depending on the markets you’re investing in.

The most trusted brokers that offer lower leverage are regulated by the FCA (UK), ASIC (Australia) and CySEC (Europe). These financial watchdogs typically limit leverage rates based on the market in question. Common leverage ratios include:

  • 1:30 – Major forex pairs, for example, EUR/USD and GBP/USD
  • 1:20 – Gold, minor forex pairs, major stock market indices, for example, NYSE and FTSE 100
  • 1:10 – Commodities and minor indices, for example, energies like oil
  • 1:5 – Stocks and shares, for example, Amazon, Microsoft, and Tesla
  • 1:2 – Cryptocurrency assets, for example, Bitcoin, Ethereum and Litecoin

Pros Of Brokers With Low Leverage

  • Gains With Reduced Risk – Using smaller leverage can benefit traders by slightly increasing their position size, and thus increasing their potential profits. With low leverage, the risk is minimized but bigger profits are still achievable.
  • Lower Charges – Because leverage means that you borrow money, the broker can charge you fees for holding positions overnight or completing transactions. However, the cost structure with lower leverage means that you borrow less, and therefore you pay less in fees.
  • Fewer Losses – As leverage boosts capital, it will also magnify any gains and losses. Choosing a broker with a lower rate of leverage will help to mitigate your losses, as you are exposed to less risk overall.
  • Beginner-Friendly – Using brokers with low leverage is a more risk-conscious strategy, which makes it ideal for beginners who are still becoming familiar with a given market.

Cons Of Brokers With Low Leverage

  • Limited Profits – When using a broker with lower leverage, your profit potential is limited by the rate of leverage they offer. There is no opportunity to make higher-risk trades that offer potentially larger returns.
  • Restricts Your Portfolio – Signing up to a broker with low leverage means you may have fewer opportunities to diversify your portfolio. A trader using high leverage is more likely to have the capital to invest in multiple assets like REITs, CFDs, bonds, or cryptos.

How To Choose Brokers With Low Leverage

The key factors to consider when selecting a trading account with lower leverage include:

  • Fees – Research the broker’s overall fee structure. Look for leverage transaction costs and any fees charged for keeping positions overnight.
  • Available Assets – Ensure that your desired asset is available, whether that’s forex, equities, commodities or cryptocurrencies.
  • Minimum Leverage – Check the level of minimum leverage offered on your chosen asset. Alternatively, we have compiled a list of the top brokers with low leverage.
  • Negative Balance Protection – This is a useful feature offered by most regulated brokers. It protects your account from going negative even if the markets change rapidly. This is especially beneficial for new traders.
  • Demo Account – Demo accounts enable you to practice trading with low leverage, and to establish if you are happy with the trading software offered by the brokerage. Free practice accounts are often the sign of a trusted broker.
  • Supported Countries – Ensure that you’re allowed to use the broker in question. Whether you’re from the US, Canada or elsewhere, different brokers will only accept traders from certain jurisdictions.

Final Word On Brokers With Low Leverage

Brokers with low leverage offer clients the opportunity to benefit from trading on margin without the risks that higher leverage can bring.

It’s important to remember, however, that any form of leveraged trading can result in unpredictable losses. Beginners should open demo accounts to practise trading on margin, and ensure that they select the most trusted broker to protect their capital.

Nevertheless, low leverage is ideal for cautious investors looking to steadily build profits. See our list of the best brokers with low leverage trading to get started.

FAQ

Is Low Leverage Better For Beginners?

Whether you’re trading crypto, forex, stocks or bonds, for beginners a lower leverage ratio is good. This helps to reduce losses, which are more expected with newcomers who may make mistakes. Fortunately, most EU, UK and Australian-regulated trading brokers cap leverage for retail traders to 1:30.

Who Are The Top Regulated Brokers With Low Leverage?

Many of the best brokers offer low leverage options, and choosing a platform will depend on your individual needs. Some of the top low leveraged trading firms include XM, AvaTrade, eToro, Capital.com, Pepperstone and IG.

What Does Low Leverage Vs Low Margin Mean?

Leverage and margin both involve borrowing funds to trade. A leveraged position means a trader has taken on debt, while the margin is the actual money/ratio i.e loan taken to invest in financial markets. Both terms are often used interchangeably.

What Countries Allow Low Leveraged Trading?

Leveraged trading is regulated and legal in numerous countries across the globe. For example:

  • US – National Futures Association (NFA)
  • Australia – Australian Securities and Investments Commission (ASIC)
  • UK and Europe – Financial Conduct Authority (FCA), the European Securities and Markets Authority (ESMA), Cyprus Securities & Exchange Commission (CySEC)
  • Singapore – Monetary Authority of Singapore (MAS)

Note, in 2021 India banned the retail trading of many leveraged products.

What Is The Difference Between Professional And Retail Leverage?

Professional and retail leverage refers to the different rates and regulations that accompany professional and retail accounts. Professional leverage access requires a high balance sheet, turnover record and evidence of investment activity.

Retail leverage accounts have a lower leverage structure imposed by various regulatory authorities which limits leverage on different assets. For example, crypto trading is commonly capped at 1:2 due to the volatility of the market.