Leveraged trading is also called virtual trading and deposit trading.It is investor uses own capital to serve as guarantee, enlarge the financing that offers from bank or broker place to undertake foreign exchange trade, enlarge investor’s trade capital namely.The proportion of financing is generally decided by banks or brokers. The larger the proportion of financing is, the less the client needs to pay.
1.Relationship between leverage and margin
To play foreign exchange, you need to understand leverage.The so-called foreign exchange leverage transaction is “foreign exchange margin transaction.Simply put, leverage is the inverse of margin in foreign exchange trading.After the deposit is paid, the goods are completely yours in title.Then you must accept fluctuations in the market price for the whole shipment.Let’s say you have to put up a 10% margin, so leverage is 10;If you’re required to put up 1% margin, then the leverage ratio is 100.Take a long order, for example. If the price goes up, you have the profit that the price of the whole lot goes up.If the price goes down, you bear the loss of the whole shipment.If the loss exceeds the amount of margin you previously put in, and you do not cover the margin, the market will force a sale of your goods, known as a blowout.
2.Leverage has both advantages and disadvantages
Foreign exchange trading, investors only need to pay 1% to 10% margin, can carry out 100% of the trade.Traders can therefore make a lot of money by taking a small amount.But leverage is a double-edged sword, and once you trade against the market, losses are magnified along with leverage.At the same time, many traders mistakenly believe that more leverage means better.In fact, some platforms are highly leveraged, 500 times, but the higher the leverage, the higher the risk.
3.Leverage
Why do forex investors choose leverage when it can be risky?This is mainly for liquidity in the foreign exchange market.Without leverage, according to the volatility of foreign exchange, there is almost no interest in foreign exchange trading except institutional banks with rigid demand.