What is leverage in forex trading

In this article we would be discussing what leverage is all about in forex.

This topic leverage itself is a very important term in forex. One of the reason why people love forex is that, you can easily get much higher leverage than you would with stocks.

Leverage is very easy to explain, this is just a term whereby you control a very large sum of money very little of your own money and borrowing the rest.

Explaining this further, the money you as a retailer deposit on the financial market is not enough, so it is the work of the broker to rent you more money in form of leverage to be able to trade the financial market.

Now let's set an example, you made a deposit of $1,000, your broker would have to give you a $100,000 position, which is what they would be lending you in form of leverage, so your leverage would be expressed in ratios which would be 100:1.

One thing about the financial market is that the leverage is commonly as high as 100:1. This means that for every $1,000 you have in your account, you can trade up to $100,000 in value. Most of this forex traders often use leverage to profit from relatively small price changes in currency pairs.

Once trading in the financial market, the higher the leverage the higher the risk you are fixing, in the market so it is best you are careful with the leverage you are making use of and also only increase your leverage only when the market is in your favour.

As a forex trader you should be careful of the leverage you make use of while trading. If you are a trader and you don't love taking much risk or you are a novice, it is advisable to make use of little leverage and take little risks.

Komolafe Peter Adedayo

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