ForexEzy
No Result
View All Result
  • Home
  • Getting Started with Forex
  • Forex Education
    • Forex Basics
    • Forex Trading Strategies
    • Money Management
    • Risk Management
    • Technical Analysis
    • Fundamental Analysis
    • Trading Psychology
    • Social Trading
    • Automated Trading
  • Forex Tools
    • Forex Robots
    • Forex Indicators
    • Forex Signals
  • Top Forex Brokers
  • Top Forex Robots
  • Commentary
  • Blog
  • Home
  • Getting Started with Forex
  • Forex Education
    • Forex Basics
    • Forex Trading Strategies
    • Money Management
    • Risk Management
    • Technical Analysis
    • Fundamental Analysis
    • Trading Psychology
    • Social Trading
    • Automated Trading
  • Forex Tools
    • Forex Robots
    • Forex Indicators
    • Forex Signals
  • Top Forex Brokers
  • Top Forex Robots
  • Commentary
  • Blog
No Result
View All Result
ForexEzy
No Result
View All Result
Home Forex Education Forex Basics

What is Leverage in Forex Trading ?

by Tim Baudin
September 14, 2016
in Forex Basics
0
What is Leverage in Forex Trading ?
0
SHARES
11
VIEWS
Share on FacebookShare on Twitter

The best advantage of the forex market that attracts a trader most is its leverage. Forex brokers offer up to 1:500 leverage. Leverage is the borrowed money from the broker on your initial investment to get a greater return.

The best advantage of the forex market that attracts a trader most is its leverage. Forex brokers offer up to 1:500 leverage. Leverage is the borrowed money from the broker on your initial investment to get a greater return.

Only forex market allows this enormous amount of leverage among all financial markets. 1:100 leverage means, for every 1$ of your trading account you can trade 100$ in the forex market.

Difference between margin and leverage :

The term margin and leverage used to describe the different thing or situation. Leverage means how much money you are borrowing outside your initial investment.

On the other hand, the margin is your investment which controls the leveraged amount. For example, if your initial investment is $1000 and you are using 1:100 leverage then your leverage is $100,000, and your margin is $1000.

Advantages of leveraged trading :

A small investment looks like a big investment in case of forex trading due to an allowance of the high leverage ratio. This is an extremely attractive opportunity for traders. You can make a decent amount of money with a small investment if you can use this high leverage effectively.

For example, if you put $1000 in your account and trading without using leverage, then your gain or loss will be 10 cents per pip. This means if you get 100 pips profit then your gain will be $5 only. This is 0.5% of your investment.

On the other hand, if you trade with 1:100 leverage ratios then your trade value is $100000. Now, if you get 50 pips profit, then your profit will be $500.

Now, this is 50% of your investment. This makes a massive difference between leverage trading and non-leverage trading.

Disadvantages of leveraged trading :

The Major disadvantage of using leverage in trading is that it carries a high amount of risk. The higher the leverage the larger the chances of profit and loss are.

Leverage increases both profitability and risk. For example, your investment is $1000, and you are trading without leverage. In this case, your trade value is $1000.

Now if you lose 50 pips from your entry price, then your loss is $5. This is only 0.5% of your investment which is small and tolerable.

Now if you are trading with 1:100 leverage then your trade value is $100000. If you lose 50 pips on this trade, then your loss will be $500 which is 50% of your invested amount. This is how margin increases risk.

Margin call in Forex Trading:

A margin call is the action or steps taken by a broker to prevent the investor’s account from going negative due to an open position. This occurs due to excessive leverage use, improper planning, and excessive exposure due to greed.

Normally, a broker gives an alert or phone call when the equity drops near or at zero due to holding a losing position. Many brokers do not give any alert or phone call, and they simply close the losing position when your investment can not bear the possible loss.

This happens when your equity is less than your used margin. Using excessive leverage is the main reason to meet a margin call.

Summary:

Leverage should be used effectively as it increases both profitability and risk. Traders should use proper position sizing before using leverage.

The high amount of leverage can lead a trader to a margin call very easily. So before using it, one should know that how much loss he/she can tolerate and avoid margin calls.

ShareTweet
Previous Post

Limit or Exit Orders in Forex Trading

Next Post

Day Trading vs Swing Trading

Related Posts

Forex Trader Toolkit for Pros

Forex Trader Toolkit for Pros

by Chintan Patel
December 31, 2020
0

Using proper tools can significantly increase your profitability. The great thing about trading Forex and CFDs is that the majority...

Finding Your Way Around MT4 As A Beginner

Finding Your Way Around MT4 As A Beginner

by Chintan Patel
December 29, 2020
0

Overview As a beginner, you don't need to find MT4 daunting. As one of the most widely used trading platforms...

Understanding Regulation In Forex

Understanding Regulation In Forex

by Adam Stanley
December 18, 2020
0

Overview No one would ever trust a company situated in the middle of nowhere with their money – regulation ensures...

All About the Foreign Exchange Interbank Market

All About the Foreign Exchange Interbank Market

by Tim Baudin
December 2, 2020
0

Introduction  When speaking about currency markets, many people feel lost because the breadth of knowledge required to understand the market...

How to Start Professional Forex Trading Floor

How to Start Professional Forex Trading Floor

by Tim Baudin
November 30, 2020
0

Trading floors are often associated with large investment banks like Morgan Stanley and Goldman Sachs. They are simply large offices...

Load More

Best Forex EA

  • ROFX 9/10
  • Forex Fury 8/10
  • FXgoodway 7.5/10
  • Z Trader FX EA 7/10
  • Forex Incontrol Reborn 6.5/10

Popular News

  • The Best RSI and CCI Combination Trading Strategy for Optimum Returns

    The Best RSI and CCI Combination Trading Strategy for Optimum Returns

    2 shares
    Share 2 Tweet 0
  • Rofx Review – High Profitability and Stable Performance Analysis

    29 shares
    Share 29 Tweet 0
  • The Best Forex Scalping Strategy – Using 3 Popular Technical Indicators

    0 shares
    Share 0 Tweet 0
  • The Best MT4 Indicators & Expert Advisors For Forex Trading

    2 shares
    Share 2 Tweet 0
  • How to check if the indicator is repainting?

    2 shares
    Share 2 Tweet 0

Trading

Footer

We are dedicated to demystify the world of forex trading for you – no matter what level you are on.

Categories
  • Automated Trading
  • Day Trading
  • Forex Basics
  • Forex Brokers
  • Forex Education
  • Forex Forecasts
  • Forex Indicators
  • Forex Market Commentary
  • Forex Robots
  • Forex Signals
  • Forex Tools
  • Forex Trading Strategies
  • Fundamental Analysis
  • Money Management
  • News
  • Risk Management
  • Social Trading
  • Technical Analysis
  • Top World Traders
  • Trading Psychology
  • Uncategorized
Tags
arbitrage atr bollinger bands cci chart patterns classics copy trading courses day trading forex brokers forex charts forex ea forex education forex forecasting Forex Indicators forex software reviews grid trading hedging ichimoku macd market cycles news trading oscillators price action trading rsi social trading strategies tips & tricks trading bots trading platforms trend trading Video
  • Terms of Use
  • Privacy Policy
  • Compensation Disclosure
  • Risk Disclosure
  • About Us
  • Contact Us

Copyright © 2020 by ForexEzy.com

No Result
View All Result
  • Home
  • Getting Started with Forex
  • Forex Education
    • Forex Basics
    • Forex Trading Strategies
    • Money Management
    • Risk Management
    • Technical Analysis
    • Fundamental Analysis
    • Trading Psychology
    • Social Trading
    • Automated Trading
  • Forex Tools
    • Forex Robots
    • Forex Indicators
    • Forex Signals
  • Top Forex Brokers
  • Top Forex Robots
  • Commentary
  • Blog

© 2020, Forexezy.