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What is Leverage in Forex

What is Leverage in Forex - In forex trading there is a 'leverage' feature that can be used by traders when buying and selling foreign currencies. The term leverage means in short it is a capital loan provided by a broker to a trader as capital for trading which must be paid later. An example of the leverage feature is as follows, for example, if you open an account with 1:200 leverage, it means that by providing capital of 1 Dollar, you can move 200 Dollars of funds, with 199 Dollars from it being "loaned funds". When registering your account with a forex broker, you should also know information about this leverage feature from the broker because you may be able to use it later when you need loan funds, for example when your money cannot be taken from the bank or when you are trading with profitable prospects but you lack capital.

What is Leverage in Forex

Read more: How do beginners trade in forex?

What is a good leverage in forex?

When you think about using forex leverage, you should consider the good and bad aspects of your finances. Because after all you are using other people's money which of course has an obligation to pay for it. Therefore, don't be too ambitious to use the leverage feature before thinking about the good and bad sides that will be faced when your trading makes a profit or loss. The best Leverage ratio for forex trading agreed upon by experienced traders is in the range of 1:100 to 1:200. So 1:100 leverage means that with $100 in the account, you will have $10,000 credit or loan funds provided by the broker for you to open trades, for $200 funds in the account you can get a loan of $20,000 and so on.

What is a 1:500 leverage? and How is forex leverage calculated?

In its literal sense, leverage is a feature that enables investment strategies using borrowed money. The goal is to get a bigger profit potential. If you've heard the term highly leveraged company, it means that the company has more debt than its equity. Leverage is in the form of a ratio or comparison, for example leverage 1:500, if you have a deposit in an account of $300 then you can use borrowed funds from a broker for $150,000 for forex trading.

Read more: What is forex trading and how does it work?

What is Margin and its Relationship to Leverage?

The meaning of leverage has been explained above along with examples. While Margin is a guarantee given by traders to brokers in smaller amounts, but the amount is proportional to the loan obtained (leverage). This margin is of course in the form of money as a guarantee that you submit to the broker when using the leverage feature. The greater the leverage (or in other words, the smaller the forex margin), the more "guarantee money" required, the more efficient you are. Therefore, to use the leverage feature you must also consult with the broker about the margin you will provide them. aplikasi penghasil uang

Can I trade forex without leverage?

Leverage is just a help feature but not mandatory. So it's up to you whether you want to use leverage when trading forex or not, because maybe you are worried that if the trade ends up losing you have to pay a loan to the broker. Because forex trading is speculative in nature, the price value of money is very volatile and can change at any time quickly. And you can choose safe options by not using leverage when trading.

Dangers of Forex Leverage

In real margin trading, forex leverage has no effect on the amount of profit or loss that we can make. However, the use of leverage if not properly can be dangerous and this relates to the ability to analyze the forex market that you are good at. If you believe that you will receive a profit in the trade that is executed then you can use leverage to increase capital so that more lots of money are traded. But if you have doubts and are afraid of forex trading failing and then getting a loss due to lack of knowledge about analysis, then you should not use the leverage feature so that you are not in debt to the broker.

That's the information about leverage and how to calculate it provided by forex brokers. Be wise in using this feature so that you don't have a lot of debt when you fail when trading forex (losses). Hope it is useful.

Watch this video for additional information about leverage forex

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