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    Thread: What is leverage and what is it for?

    1. #41
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      Leverage is the thing which can let you trade with even more than the money that you have or to utilize it well. If you use higher leverage then you will not get the margin call that soon but if you use lower leverage then you may get the margin call pretty soon so it is better that you use higher leverage always.

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      When a trader decides to trade in the Forex Market, he or she must first open a margin account with a Forex 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 that the investor is trading.

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      Leverage is like loan . It is a virtual loan. Usually it requires big amount of capital to trade in forex and not everyone can manage big capital to trade in forex. So every brokers provide big leverage to traders so that they can trade with small capital also. Leverage is very helpful. Because of leverage small capital holders are still trading in forex.

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      Financial leverage helps to double the invested capital. There are some risks when trading a high leverage because in case of loss the loss will be large, but in the case of profit you will get a high amount of profits.

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      leverage is about using other people money or time to achieve your own goal, so when we talk about leverage in this forex trading business we are simply talking about a situation where your broker will borrow you money just because they want you to trade more and then all the profits becomes yours alone.

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      A leverage is just like a loan given to a Forex trader by the Forex broker.

      When a trader choose a leverage of 1:400, what he is saying is that for every US$1 that s/he deposit to trade with, the broker should borrow him/her an equivalent $399 totaling to $400.

      If you as a trader invests $100 to trade with a leverage of 1:400, your broker will borrow you $100 x 399 = $39,900.

      Hence, you will be trading with $40,000 (i.e. $100 + $39,900) but in reality, only your $100 will be showing on the platform but the broker will be executing your trades for you with $40,000.

      Whatever you gain during your tradings will belong to you fully as your profits and any loss incurred will be deducted from your $100. You can never lose your broker's borrowed money.

      Lastly, your trade get terminated if your $100 got diminished to margin call as a result of your losing trades.
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