Understanding Leverage: A Guide to Trading Safely and Effectively

Leverage is a fundamental concept in trading that allows traders to magnify their exposure to the market. However, it’s not just about making potential profits—it’s also about managing risk, particularly during periods of high market volatility. This article will explain how leverage works and how it’s affected by various factors such as economic news, weekends, and market holidays for traders of Land-FX.

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The Basics of Leverage

Leverage refers to the use of borrowed capital, usually provided by your broker, to open a trade position. To illustrate this, let’s consider an example from the stock market.

Suppose you want to buy 100 shares of a company trading at $10 per share. Without leverage, you’d need $1,000 to open this trade. However, some brokers allow you to borrow a certain percentage of the total stock value, typically 50%. This means you’d only need $500 of your own capital to open the trade, allowing you to buy more shares with the same amount of money.

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Impact of Economic News on Leverage

Economic news can significantly affect the market, creating volatility. This volatility can lead to gaps in pricing and spread widening, which can, in turn, lead to substantial losses for traders.

To protect traders during these periods, Land-FX introduces higher margin requirements, effectively lowering the leverage to a maximum of 200:1 for the affected products. This change applies for a 20-minute interval, starting 15 minutes prior to the news release and lasting until 5 minutes afterward.

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Leverage During Weekends and Market Holidays

During weekends, from 3 hours after the market close until 2 hours after it reopens, the margin requirements for new positions are set to a maximum 200:1 leverage.

Higher margin requirements may also be imposed during market holidays. Updates regarding these changes will be posted on the News and Research page.

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Leverage Policy Based on Equity Amount

The leverage policy is structured according to the equity amount in your account:

$0~$999:

Unlimited leverage, with a maximum of 30 lots per trade and 100 lots per symbol.

$1,000~4,999:

2,000:1 leverage, with the same maximum number of lots.

$5,000~$29,999:

1,000:1 leverage, again with the same maximum number of lots.

$30,000~$199,999:

500:1 leverage, with the same lot limits.

$200,000 and above:

200:1 leverage, with the same lot limits.

Please note that all symbols, including Minor & Exotic Pairs, have different leverages that are proportional to the leverage of the account.

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Changes in Leverage Levels and Its Effects

Changes in the leverage levels affect Standard, Prime, and ECN accounts and will alter your market requirements.

Your leverage levels will revert to its original settings once the period of higher margin requirements has passed. However, any positions opened during the higher margin requirements period will readjust to its normal leverage levels within two hours after the market reopens.

Please be aware that if you close out positions during the time when higher margin requirements are introduced, the order placed will become a new position. This new position will be assigned margin requirements in proportion to the higher margin requirements applied to the previous cancelled order.

During the weekend, higher margin requirements (200:1 leverage) are introduced to all products, except for certain symbols that have preset margin requirements such as exotic pairs, cryptocurrency, energy, indices, etc. However, market holidays could apply to certain specific regions and related products.

In conclusion, leverage is a powerful tool that can enhance your trading capabilities. However, it also increases risk. Understanding how it works and how it’s affected by different factors is crucial for successful and responsible trading.