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Leverage in Forex


Leverage in Forex allows increasing the power of trading accounts by literally allowing traders to operate larger funds. For each real dollar funded by a trader, Forex brokers offer a leverage up to 400:1 or even higher, which increases traders buying/selling capabilities while trading Forex.

A leverage of 200:1, for example, means that for each dollar invested a broker adds $200 dollars on top, making the trading account 200 times larger. Thus, funding your account with $1000 at 200:1 leverage would enable you to operate a $200 000 account.

Only traders with really large accounts may afford trading Forex without leverage. For all other traders leveraging their investments is often the only way to participate in Forex currency trading and be able to operate large trading lots while make reasonable profits from trading Forex.

What leverage does, it allows a trader to trade money he/she doesn't possess. We may call it virtual money trading.

While it is possible to make profits with virtual money in Forex, it is absolutely impossible to lose virtual money, instead traders lose only real money they have invested or earned as a result of profitable trading.

Forex brokers offer various leverage options: from 10:1 up to 500:1 Forex leverage know today.

While experienced traders have no problems choosing the next best leverage for their new trading accounts, novice traders often have difficulties selecting the right leveraging option. Besides that, warnings about dangers of high leverages published online by Forex traders create additional fears.

There is danger in almost everything if one doesn't know how to use it.

High leverage can be dangerous IF a trader doesn't have the basic knowledge about using it properly. That's right, a basic knowledge about leverage is just enough to keep any Forex trader away from troubles and actually stop worrying about this subject at all.

Let's learn those basics:

- Leverage enables any trader to be an equal participant on the Forex market alongside with large institutional traders, such as banks, various financial institutions and individuals with large trading accounts;

- Leverage allows trading larger positions, e.g. operate larger funds;

- The higher the leverage the higher trader's buying/selling capability at any moment;

- The higher the leverage the lower the margin requirements (we'll get to a margin later).

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