Leverage in Forex is the amount that a trader borrows from a financial company that enters the market. This gives him the opportunity to open positions with a larger volume than he has on his personal deposit.
Leverage is the amount of money lent to a trader by a bank or a company that accesses the market. Without the use of leverage, an investor simply would not be able to enter the market without having an amount of at least 100 thousand currency units. And so he can operate with an amount that is many times higher than his own, which, accordingly, increases the profitability in percentage terms.
Leverage options
There are large differences between financial institutions on the market, including in terms of the size of the leverage. Someone has a ceiling of 1: 200, someone has a ceiling of 1: 500. That is, leverage is the ratio of the traded volume to the trader's own funds. If a trader has $ 100 on his account, he can make a deal with a lot of 10,000. In this case, the leverage will be 1: 100. If the player places a lot of 5000, then the leverage will be 1:50. From the above, we can conclude that the leverage is set automatically, but cannot exceed the maximum set ceiling.
What is the risk of losing your deposit when providing leverage?
The provision of leverage to a trader by a financial company does not in any way affect his ability to dispose of someone else's, that is, borrowed funds. If his assets are $ 1000, then whatever leverage he bets, there will still be only $ 1000. He can play with a leverage of 1: 1, 1: 100 or 1: 500, but this will not affect his deposit, but will provide an opportunity to open positions of a larger volume. For example, with a 1: 1 leverage, a trader can open only for this $ 1000 available to him. With this volume, the price of one point will be 10 cents. He can drain his entire deposit only if the price goes not in his direction by 10,000 points.
With a leverage of 1: 100, a player can open a position with a volume of $ 100,000. With this volume, the price of one pip will be $ 10. The risk of losing your entire deposit will appear when the price passes 100 pips against the trader. With a leverage of 1: 500, a position of half a million dollars can be opened, and only 20 points of price movement not in the direction of the trader can mean the collapse of everything for him. The leverage itself does not yet provide for risk, but does not exclude its possibility.
