Know In Detail What is Leverage in Forex
Before You Start Investing
In Forex trading, you will come across the term “leverage” quite often. It’s an interesting aspect of trading in this market. Leverage helps a trader to trade in a bigger amount than they could otherwise do. Market experts have found that leverage is one of the prime reasons behind the unprecedented increase in the number of traders in the last decade.
A question obviously pops up, what is leverage in Forex? How does a leverage help in trading? Let’s discuss the matter a little bit elaborately. It will only enhance your interest in Forex.
Leverage – In Forex it’s an advantage to traders
Suppose, you don’t have the amount required to trading on a certain currency but speculation says the currency would give a positive result within a few days. What would you do? Normally, you would plan to borrow the difference amount from your personal contacts with a promise to return them within a specified time. If such personal contacts are not available, you will leave that trading. In the Forex, you have the scope to borrow a certain amount of money from the broker.
The digitalization of Forex and its rapid growth of it is made possible because of the presence of brokers as intermediaries. Retail clients with the help of brokers can access the Forex market any time of the day without being physically present there. These same brokers have initiated margin trading that makes leverage in Forex so much interesting for individual traders or retail clients. As such margin-based leverage has become a common matter in Forex. In this matter, top brokers of the market and supporting channels like FX-trading circle come forward for complete knowledge. The system is simple:
· You register with a valid Forex broker
· You deposit a certain amount with the broker
· At the time of trading, the broker deducts a margin amount from your balance
· You can trade for high volumes that are several times more than the balance deducted which is the leverage you get from the broker
· In case of loss, you lose the balance amount deducted from your account only
Is not it an advantage for a trader, especially the new traders who normally start trading with small investments?
Brokers offer diverse leverage – you can avail of 1:1 or 400:1 or anything in-between as per your strategy and of course, as the booker offers as margin-based leverage. In the Forex market, 100:1 is the most common leverage availed.
Leverage in Forex is something that makes your trading easier, especially if you are new to the market. It is technically margin-based leverage that you can avail from the broker in a pre-determined ratio like 1:1 or 100:1.