leverage what is it

What is leverage in forex and how to use it to earn?

What is Leverage Trading?

Leverage allows a client to trade without putting up the full amount. Instead, a margin amount is required. Traders use leverage to significantly increase the return on a CFD investment. Simply speaking, leverage is a loan that is offered to an investor by the broker that is handling his or her account. Leverage varies according to the instruments.

Common leverage amounts offered by most brokers:

Instrument
Leverage
Forex
Up to 1:400
Comodities
Up to 1:200
Indices
Up to 1:200
Shares
Up to 1:50
Bitcoin
Maximum 1:10

Examples of leverage trading

  1. You decide that you want to buy Google Shares. Instead of purchasing 1,000 Shares of Google from a Stockbroker, you buy 1,000 CFDs of Google on a trading platform. If there is a $4 per share fall in the price of Google, you would receive a $4,000 loss. However, if there is a $4 per share rise in the price of Google, you would receive a $4,000 profit, just as if you had purchased the actual shares.

  2. With a deposit of $1,000, your equity is $1,000, leverage to trade forex: 1:400. Your total to trade with is $1,000 x 400 = $400,000

  3. You open a trading account with $5,000 as margin, which is the collateral or equity in your trading account. Your leverage is 50:1 for major currency pairs. This implies that you can put on a maximum of $250,000 ($5,000 x 50) in currency trading positions.



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