Dynamic Leverage: how brokers can use all the risk management opportunities
Leverage is a term that every novice trader comes across. But the dynamic leverage concept is not familiar to all clients because this tool is primarily focused on helping brokers manage risk.
The role of risk management in a broker’s work
Risk calculation is the main stage of any business, and a brokerage is no exception. The broker is financially responsible for his clients to liquidity providers. That is, if the trader turns out to be insolvent and cannot pay his debts, it is the broker who settles with the exchange.
Real-time monitoring of client behavior, changes in the size of the available deposit, applied trading strategies and the assets used is important for the service provider. The main goal is to prevent a loss of all the money in an account, and even more so – a dip into the red. For this purpose, the broker resorts to additional risk management tools. Among them are spread management, StopOut plugins, instant notifications and other products of third-party software vendors.
A separate place in the field of risk management is allotted to dynamic leverage. Its advantage compared to regular leverage is the ability to customize it for different categories of traders, trading volumes, assets, etc. That is, the broker himself determines to whom and when to provide the service.
How to control risks using dynamic leverage
Leverage is a service for granting loans to traders. A broker’s client obtains an opportunity to conclude transactions for amounts that significantly exceed the deposit in his account: by 10, 50, 200 or more times. It has significant profit potential, but the risks for the trader are still in place.
The broker also runs the risk by offering this feature. If the ratio of borrowed funds to the deposit is unregulated when working with large contracts, transaction losses can be huge. Therefore, brokerage service providers prefer to use dynamic leverage.
That’s what it boils down to: leverage is reduced when contract volume increases, and it also depends on the trader’s strategy. Also, specific leverage is assigned to each individual group of assets independently of each other. For example, for major currency pairs, the maximum leverage is set at 1:200, and for exotic ones it equals 1:100. Thus, the broker manages to keep risks under control and minimize losses even when working with large clients.
Read here : The Risks of Automating Business Processes
Installing and configuring the plugin
The Dynamic Leverage plugin allows to set up as many leverage calculation rules as the broker needs. This opens up new opportunities for responsible and profitable clients to increase their trading volumes.
Software can be installed and configured in two ways:
1: By the software supplier’s staff. The service can be provided free of charge or separately. The developer will install the plugin and test its operation.
2: Independently. Software products for brokers come with instructions. If you have any questions, you can consult the provider through the available communication channels.
The settings may subsequently be altered depending on the strategy that the broker chooses. The plugin has a special interface for this purpose.