What is Leverage?
Leverage is a financial tool that enables an investor to amplify his or her market exposure to a level that surpasses his or her initial capital.
- The ability to control large dollar amounts of a commodity or other asset with a comparatively small amount of capital.
- The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.
- (Gearing) The usage of a margin to trade on a larger capital base. In foreign exchange a trader’s leverage is often represented as a percentage of margin requirements. For example a 1% margin will give a 100:1 leverage, and so a trader with a deposit of $10,000 will be able to hold open positions of $1,000,000 being 100 times his net equity.
Leverage is the key tool of Forex
Leverage is one of the key components behind trading Forex.
It is expressed as a ratio and works directly in hand with the margin which is set by us as your broker.
The world’s standard leverage on accounts is 100:1 and therefore by opting to have greater leverage, ie 200:1 the margin required to open and hold an fx position drops (in this case by half).
For this reason margin based trading can be an attractive tool for clients to gain greater exposure to the Forex market.
Of course in additional to greater earning potential, you will also face the risk of losing more so it is important to assess your personal risk appetite.