LEVERAGE & MARGIN

THE USE OF LEVERAGE & MARGIN

One of the main appealing about forex trading is the use of Leverage & Margin. It allows you to use a small amount of capital to open and maintain a much larger position. For example, if you want to open a trade of $100,000 worth of EURUSD, you don’t have to have that $100,000 dollars in your account.

What is

Leverage?

Technically, leverage is where a trader has a large sum at their disposal while using significantly smaller amount of their own funds. They effectively borrow the rest from their broker. For example, if you’re trading with 1:1000 leverage, and you have $1,000 in your avoount, you’ve got $100,000 available for trading. Although this sounds like an insanely good opportunity, you must always remember that it’s double-edged sword. When you trade with a larger amount, as leverage enables you to do, you can open bigger positions and potentially earn larger profits. However, with bigger positions you also have a higher risk whereby your losses could also be large.

What is

Margin?

Margin trading is a method of trading assets using provided by a third party, When compared to regular trading accounts, margin accounts allow traders to access greater sums of capital, allowing them to leverage their positions. Essentially, margin trading amplifies trading results so that traders are able to realize larger profits on successful trades. This ability to expand trading results makes margin trading especially popular in low-votality markets, particularly the international Forex market. In traditional markets, the borrowed funds are provided by an investment broker. In cryptocurrency trading, however, funds are often provided by other traders, who earn interst based on market demand for margin funds.