Trading on Forex, you will deal with assets and funds from equity. But this complicates the trading of transactions and the amount of which is many times higher than your capital. Fortunately, there is a financial instrument that allows you to participate in such transactions, investing only a small percentage of your own funds, and receive increased profits. It is called "leverage."
Leverage - borrowed funds allocated by a broker for trading.
Leverage is the basis of margin trading, which is extremely popular in the Forex market. With leverage, a trader can use funds significantly exceeding his net worth. Subsequently, this can increase the trader’s income, but there is a risk of loss of both part or all funds.
The leverage is prescribed in the contract with the broker and depends on many factors, including the platform used, the specific asset and the broker itself.
For example, a 1:10 leverage works like this: a broker gives you funds that are 10 times bigger your own. Thanks to this, you can open transactions with capital that is 10 times larger. The profit from such a transaction with leverage may exceed the profit of the transaction without leverage by 10 times.
Features of trading with leverage
Margin trading is characterized by several key features, reflecting both its pros and cons:
Minimum invested capital
when trading, you don’t pay the full cost at the conclusion of transactions, but only part of it.
Accessibility of tools
access to the most popular assets costs money. With leverage, you can play on the difference in rates without entering the market for these assets.
leverage allows you to trade with minimal capital, but as you know: the more profit — the greater the risk. Leverage trading raises interest rates without the risk of losing significant amounts of equity, and thereby educates the trader, helps to better assess the danger and the chances of getting better income. Without sufficient experience, try not to use the maximum leverage.
Also, we must not forget that with increasing profits, costs also increase. For example, with a leverage of 1:10 and a deposit of 1000 USD, the costs will be 100 USD.
Getting the most convenient leverage is an important aspect for a successful trading session and maximizing profit. As you know, excellent trading comes with experience, so we recommend experimenting with different levels of leverage in order to choose the most convenient and efficient trading strategy.