Margin

Many traders are attracted to forex’s liberal margin requirements. You must have at least 50 percent margin (2:1 leverage) to trade stocks and (typically) anywhere from 3 percent to 20 percent to trade futures, but you can trade currencies, depending on the brokerage, with as little as 0.25 percent margin (400:1 leverage) in a forex account.

While most firms require at least 1 percent margin, or $1,000 for every $100,000 traded, some dealers let you trade the same amount with only $250 initial margin, depending on account size.

However, leverage is just a tool and its drawbacks balance its benefits. If you have $1,000 in your account and you use 100:1 leverage, a 1-percent increase in a $100,000 position doubles your initial capital from $1,000 to $2,000, but if it declines by the same amount, you’re wiped out.

New traders should remember that leverage is not mandatory, it’s an option — and one better left to more experienced traders.