How Does Leverage Work When Trading Currencies?
Leverage in Forex trading represents the ratio of your funds to your broker’s credit. In plain terms, leverage is capital you get on loan to increase your profits. It’s common for the leverage to exceed your invested capital.
The amount of leverage isn’t fixed. It’s determined by the trading conditions each broker offers.
By loaning funds from your broker, you can take larger trade positions. In this sense, leverage increases the profits from positive fluctuations in currency exchange rates.
Forex trading offers traders the opportunity to accumulate and control enormous sums. This is possible because the trader meets a preliminary margin requirement.
Leverage can help you expand your firm or individual capital base. It offers a high return on your risk capital.
Yet, leverage can be a sly partner; it can make you suffer significant losses. You must use proper leverage and risk management approaches to reduce losses.