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Leverage
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What is Leverage? The leverage that is achievable in the Foreign Exchange market is one of the highest that investors can obtain. Leverage is a loan that is provided to an investor by the broker that is handling his or her Foreign Exchange account. When an investor decides to invest in the Foreign Exchange market, he or she must first open up a margin account with a broker. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the position the investor is trading. Standard trading is done on 100,000 units of currency, so for a trade of this size, the leverage provided is usually 50:1 or 100:1. Leverage of 200:1 is usually used for positions of $50,000 or less. |
1:200
To trade $100,000 of currency, with a margin of 1%, an investor will only have to deposit $500 into his or her margin account. The leverage provided on a trade like this is 100:1.
Although the ability to earn significant profits by using leverage is substantial, leverage can also work against investors. For example, if the currency underlying one of your trades moves in the opposite direction of what you believed would happen, leverage will greatly amplify the potential losses. To avoid such a catastrophe, Foreign Exchange traders usually implement a strict trading style that includes the use of stop and limit orders.
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Disclaimer
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage often used in currency trading can work against investors. Due to the nature of leveraged products, investors can lose more than their initial deposit. The content of this website does not constitute a recommendation and consequently, investors should consider the information in light of their objectives, financial situation and needs before making any decision about whether to acquire any WSD financial products. For more information, please feel free to contact us at +64 96320132/9632100