Yesterday in my afternoon Money and Markets column, I pointed out why forex is one of the hottest investment markets in the world this year because, as we know, volatility is on the rise and that makes it a target-rich environment for forex investors.
But there’s a second, even bigger, factor that can consistently magnify your profit potential in forex trading: Leverage.
Factor #2: Leverage can be a double-edged sword and must be handled with care, but forex trading thrives on the abundant availability of leverage, which can dramatically increase your profit potential, even with a relatively small move in the underlying currency.
It’s common for forex brokers to offer 5-to-1, 10-to-1, even 50-to-1 leverage. This means that even a small move in a forex currency pair can lead to big profit potential for savvy traders.
Take this morning’s U.S. jobs report for example.
This is just one of several potentially market-moving events that recurs every single month like clockwork. Forex traders can jump all over these events to earn consistent profits month after month.
My colleagues Boris Schlossberg and Kathy Lien track dozens of market-moving events just like this in the U.S., Europe, and Asia … and they aim to profit from them every single month.
Stock markets can swing up or down depending on the outcome of these calendar events too, but the moves are generally too small to profit from.
It’s little more than background noise for stock investors, but for forex investors it’s a very different and more profitable story.
That’s because the leverage typically used by forex investors can magnify the profit potential many times over, even from a seemingly insignificant move in currencies.
Case in point: The U.S. jobs report last July was surprisingly strong with the unemployment rate dropping from 5.5% to 5.3%.
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Implication: Stronger job growth means a faster growing U.S. economy, which in turn should spur the Fed to raise interest rates.
Since the rest of the world was flooding their economies with easy money at the same time, higher rates in the U.S. should propel the U.S. dollar higher.
Sure enough, the buck moved up against most major currencies including the euro, pound and Australian dollar. In fact, the greenback gained two cents against the Aussie in just a few days, which is a fairly sizeable move for currencies.
Now, your average investor would never notice a two-cent move in one of their stock holdings … it’s nothing more than a rounding error.
|The average investor would never notice a two-cent move in one of their stock holdings.|
But in forex, using even modest leverage of 10-to-1, that two-penny move in the U.S. dollar/Aussie dollar forex pair translates into a gain of 47.7% …
And at 50-to-1 leverage it means a profit of 238.5%!
The key to harnessing the leveraged profit potential of forex is to know ahead of time exactly which market moving events are coming up, and positioning yourself to profit from the inevitable currency moves that always follow.
There are dozens of these events every month or so including: central bank meetings, economic reports, OPEC meetings, elections and much more.
My colleagues Boris and Kathy have every single one of them on their calendar, which is exactly why they earn profits like clockwork, by taking the guesswork out of forex trading.
Bottom line: While leverage can be a double-edged sword, when applied to a system for trading forex based on calendar events that are known ahead of time, it’s a powerful tool for earning consistent profits, even on minor moves in currency pairs.
Director of Research
P.S. You could have gone for profits of 188%, 238%, and 268% in as little as four days as recent employment reports moved currency markets. And there are still FOUR more market-moving events on tap to profit from before December ends. To find out how my colleagues Boris and Kathy are positioned for these events in Calendar Profits Trader, be sure to click here now.