How does your bonus affect your leverage?

A bonus, in its most basic sense, is just a method of offering traders an incentive for choosing a particular broker over another.

After establishing an account with a Forex broker like Khwezi Trade, a trader will be able to trade currency pairs and will be required to bear the costs of the spreads that are incurred by every other trader in the market.

Once the trader has demonstrated that they are an active participant in the market, the broker will award the trader with the bonus when they deposit as a way of thanking them for their choice of trading platform and allowing them more buying power in the market.

Forex bonuses present several advantages to new and existing traders, and in this article, we explore the way that receiving a Forex bonus will affect your leverage.

Understanding how Forex bonuses work

There are a number of incentives that brokers like Khwezi Trade are willing to give to traders, and one of these is by providing the trader with a credit once they have finished making a deposit. The credit or bonus is normally a percentage of the deposited amount varying between 20% and 60%.

Forex No Deposit bonus

This Forex trading bonus is provided to traders at no additional cost to them and does not need a deposit on their part. In most cases, the amount of such a bonus ranges anywhere from R100 and R500.

In most cases, brokers will make such offers available to traders in the hopes that they will become more likely to carry out transactions and will learn how to trade currencies more successfully.

As the money that is traded takes place on live servers, these bonuses can provide a preview of live conditions.

Traders with more experience can benefit greatly from this type of bonus. When it comes to the construction of trading techniques, no deposit bonuses are among the most helpful tools available.

The fact that novice traders typically begin their involvement in the market by taking advantage of Forex trading bonus offers is the most significant drawback associated with these bonuses. It’s important to note that no deposit bonuses are not withdrawable and a trader should be familiarised with the brokers terms and conditions.

This is due to the fact that a no deposit bonus enables traders to test out new methods of trading and tactics without putting their live accounts at risk of suffering substantial losses. Trading can become less stressful when you open an account that offers a bonus with no initial deposit required. Khwezi Trade recommends rather starting with a demo account to test the trade execution times of the platform and get a feeling for the spreads applicable per instruments available.

Forex Deposit Bonus

The Forex deposit bonus is one of the most prevalent types of promotional incentives that brokerage firms use to encourage new clients to sign up for their services. Khwezi Trade likes to offer experienced traders a deposit bonus which varies between 20-50% depending on the promotion at the time.

The principle behind this is that investors will receive either a predetermined sum of money or a particular percentage of the money they initially deposited into their trading account in exchange for making the original financial commitment.

A first time deposit or welcome bonus is, in the vast majority of circumstances, only given out once, and it is restricted to new customers.

However, it is important to note that in this context, there are also some Forex deposit bonus brokers who offer their customers this kind of benefit each time they deposit money on their trading account. This is to the discretion of the broker and can be applied to clients depending on their trading style and history.

It is worth adding that there are Forex deposit bonus brokers. These are also referred to as reload deposits in some instances.

Many market participants find the deposit bonus offers to be appealing since it enables them to enhance the amount of trading capital they have at their disposal by a specified amount and then use that additional cash to create new positions.

Additional Forex Bonus Types

When traders make additional deposits of money into their trading accounts, certain brokerage firms reward them with bonuses. In some circles, these are sometimes referred to as “reload bonuses.”

It is important to note that in most circumstances, the percentage amount of the bonus can be less than what is often offered for welcome bonuses. This is something that should be kept in mind moving forward.

This makes perfect sense when one considers that the consistent payments that are associated with reload bonuses constitute a significantly greater amount of long-term expenditure when compared to the circumstances in which welcome bonuses are involved.

Despite this, it should come as no surprise that a sizable proportion of traders find these kinds of bonuses to be appealing.

Participants in this market have the opportunity, as a result of these reload bonuses, to significantly grow the size of their trading capital, as opposed to simply earning a single bonus payment.

In this scenario, the traders not only gain incentives for opening a new account but also for each and every time that they make a deposit into their existing account.

All traders should read the terms and conditions issues and available on the broker’s website to understand the offering and what it entails. For example, some brokers require traders to trade or meet a certain amount of volume traded in order to qualify for the withdrawal of their credit or bonus.

Understanding how leverage works

The foreign exchange market makes extensive use of the idea of leverage. Investors can take larger stakes in a currency by borrowing money from a broker and using that money to trade.

As a consequence of this, leverage amplifies the rewards obtained from advantageous shifts in the exchange rate of a currency.

Leverage is a tool offered by brokers like Khwezi Trade that investors use to potentially boost their profits from currency trading. The foreign exchange market provides investors with one of the highest levels of leverage that is currently available.

The broker will essentially extend credit in the form of a loan to the investor in the form of leverage. Establishing a forex trading account for the trader is necessary in order to engage in margin trading or trading using borrowed money.

When dealing with inexperienced traders, certain brokers may initially restrict the amount of leverage that can be utilized. In the vast majority of instances, traders have the ability to customize the amount or size of the deal based on the leverage that they desire.

However, the broker will require that an initial margin, which is a percentage of the trade’s notional amount that must be held in cash in the account, be paid before the trade can be executed.

How a Forex Bonus affects leverage

Forex bonuses increase the amount of money in your account, and therefore it will increase the amount of leverage that is available to you. Below is a detailed explanation of this process.

Your deposit amount affects your trade size

Let’s assume your minimum trade size is 0.01 lots. On the currency market, the typical contract size that is used is called a lot. Because one lot is equivalent to 100,000 units of a base currency, one hundredth of a lot is equal to one thousand units of the base currency.

If your leverage is 1:1000 and you make a purchase of 0.01 lots of EUR/USD, you will be required to put up a margin of R16 for the trade.

If you have a micro account and deposit R80 your deposit will cover this margin, and you will be allowed to open three more transactions of the same value. Every point that the price moves in either direction will net you or cost you R16.

If you have a larger deposit size in your account, you will also be able to open a larger position with the leverage ratio made available to you.

The great thing about increasing leverage by means of a Forex bonus is that you are not increasing the risk of losses occurred to your own capital, as the bonus amount is money awarded to you by your broker.

How to minimize the overall risk of using leverage

Once you understand how to keep your leverage under control, you no longer have any need to be afraid of it. The one and only circumstance in which you should never employ leverage is when you approach your trades in a hands-off manner.

In any other case, leverage can be used successfully and financially provided that it is managed properly. Leverage, like any other potentially dangerous tool, requires careful manipulation; nevertheless, once you’ve mastered this skill, there’s no need for concern on your part.

Smaller amounts of real leverage applied to each trade allow for more breathing room, which can be achieved by setting a stop that is both wider and more acceptable, so reducing the risk of suffering a greater loss of cash.

If the deal goes against you and you are using a high level of leverage, your trading account might be depleted very rapidly because you will rack up greater losses due to the larger lot sizes. Bear in mind that leverage can be adjusted in accordance with the specific requirements of each individual trader.

Final Thoughts

A Forex bonus is often awarded by brokers to new traders when opening an account, and can also be awarded on subsequent deposits made by existing traders, depending on the bonus schemes provided by individual brokers.

The use of a Forex bonus allows you to boost your leverage ratio, and therefore increase the size of your position, without placing any risk of loss on your own investment capital.

Other Resources

SA’s best FSCA-regulated Forex Brokers

How do interest rates affect traders

Calculating Forex lot sizes

How to trade while working full-time

How is Forex income taxed in South Africa

Recommended Posts