What is Forex Leverage?

leverage

Wouldn’t it be great if you could invest only $100 in the forex market and trade $10,000? With such small changes in forex prices, wouldn’t you make more profit trading with $10,000 than with $100? And wouldn’t it be even better if you could invest your $100 but trade an astronomical $50,000!? Well, now you can thanks to forex leverages.

What is forex leverage? Basically, when you open an account with your forex broker, what you are opening is called a margin account. You will be given the option of choosing either 10:1, 50:1, 100:1, 800:1 etc etc depending on the broker you chose to deal with. Let us assume you opt for 10:1

This means that you can open trade positions that are 10 times larger than your deposit. This means that if you deposit $1,000 in your forex trading account you will be able to place trades worth $10,000

Because forex relies on very small changes in price (pips), if you are making 10 cents per pip on a $1,000 investment, you will now make $1 per pip with the 10,000 trade position and earn more from the same trade.

A word of caution though. When it comes to leverages, it cuts both ways. So if you earn more profits with huge leverages, you lose more with the same leverage. Also, like in the above example, if huge leverages make you lose $1,000 (your original investment, not the $10,000 you have used to open your trading position), your forex broker will immediately institute a Margin Call. Basically, this is an order to immediately fund your account with more money if you wish to continue trading or close your position and flush your entire account balance down the drain.

What am I saying? Don’t be greedy and go for huge leverages like 800:1, you might burn more than just your fingers and your pockets.

Have you got any questions regarding forex leverages and how they work? Pop your question in the comment section below and I will respond immediately it pops up on my dashboard.

You can also click HERE to open a forex broker account right now and start trading forex immediately.

I wish you happy and prosperous trading.

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