We use cookies to give you a better online experience. By using our website you agree to our use of cookies in accordance with our privacy policy. It is important for inexperienced traders and clients who are new to trading FX, or indeed new to trading on any financial markets, to completely understand the concepts of leverage and margin. Too often new traders are impatient to begin trading and fail to grasp the importance and impact these two critical success factors will have on the outcome of their strategies success. Leverage, as the term suggests, offers up the opportunity for traders to lever up the use of the actual money they have in their account and risked in the market, in leverage to what maximise any profit. In simple terms; if a trader uses leverage of 1: Investors and traders therefore use the concept of leverage to potentially increase their profits on any particular trade, forex investment. In FX trading, the leverage on offer is generally the highest available in the financial markets. Leverage levels are set by the strategies broker and can vary, from: Brokers will allow traders to adjust leverage up or down, but forex set limits. For leverage, at FXCC our maximum what on our ECN standard account is 1: The initial amount that needs to be deposited into a Forex trading account will depend what the margin strategies agreed between trader and broker. Standard trading is done onunits of currency. The investor is trading leverage the original margin deposit. The leverage in this forex is 1: One unit controls units. It must be noted that leverage of what magnitude is significantly higher than the 1: These increased leverage levels available on FX accounts are generally only possible due to the lower price fluctuations on the forex markets, compared to the higher fluctuations experienced on the equity markets. If the forex markets fluctuated and moved in similar patterns as the equity markets, then forex brokers could what offer such high what, as this would expose them to unacceptable risk levels. Using leverage allows for significant scope to maximise the returns on profitable forex trades, applying leverage allows traders to control a currency position worth many times the value leverage the actual investment. Leverage is a double-edged sword however. If the underlying currency in one of your trades moves against you, the forex in the forex trade will magnify your losses. Your trading style will greatly dictate your use of leverage and margin. Use a well thought out forex trading strategy, prudent use of trading stops and limits and effective money management. Margin is best understood as a good faith deposit on behalf of a trader, a trader puts up collateral in terms of credit in their account, in order to hold open a position or positions in the market place, this is a requirement because forex FX brokers do not offer credit. When trading with margin and using leverage, the amount of margin required to hold strategies a position or positions is determined by the trade size. As trade size increases margin requirements increase. Simply put; margin is the amount required to hold the trade or trades open. What is the multiple of exposure to account equity. We have now explained that margin is the strategies of account balance required in order to hold the trade open and we have explained that leverage forex the multiple of exposure versus account equity. So let's use an example to explain how margin works and how a margin call might occur. A broker needs to ensure that the trade or trades the trader leverage taking in the market place, are covered by the balance in their account. Margin could be regarded as a safety net, for both strategies and brokers. Traders should monitor the level of margin balance in their account at all times because they may be in profitable forex, or convinced that the position they are in will become profitable, but find their trade or trades are closed if their margin requirement strategies breached. If the margin drops below the required levels, FXCC may initiate what is known as a "margin call". In this scenario, FXCC will either advise the trader leverage deposit additional funds into their forex account, or close out some or all of the positions in order to limit the loss, to both trader and broker. Creating trading plans, whilst ensuring trader discipline is always maintained, should determine the effective use of leverage and margin. A thorough, detailed, forex trading strategy, underpinned by a concrete trading plan, is one of the cornerstones of trading success. Combined with prudent use of trading stops and take profit limit orders, added to effective money management should encourage the successful use of leverage and margin, potentially allowing traders to flourish. In summary, a situation where a margin call might occur is due to use of excessive use of leverage, with inadequate capital, whilst holding on to losing trades for too long, when they should be closed. Finally, there are other ways to limit margin calls and by far the most effective is to trade by leverage stops. By using stops on each and every trade, your margin requirement is immediately re-calculated. At FXCC, depending on the ECN account selected, clients can choose their required leverage, from 1: Clients looking to change their leverage levels can do so by submitting a request through their trader hub area or by email to: Leverage what increase your profits, but as well can magnify leverage losses. Please ensure that you understand the mechanics of leverage. Seek independent advice if necessary. Trading in Forex and Contracts for Difference CFDswhich are leveraged products, is highly speculative and involves substantial risk of loss. It is possible to lose all the initial capital invested. Therefore, Forex and CFDs may not be suitable for all investors. Only invest with money you can afford to lose. So please ensure that you fully understand the risks involved. Home about Why FXCC What is ECN? Trading Conditions Instruments Spreads Roll Over Forex Slippage. Wallis and Futuna Western Sahara Yemen Zambia Zimbabwe. Why are these two factors important when strategies FX?
Forex webinar “Aggressive trading How to employ high leverage and not to lose your account ”
Forex webinar “Aggressive trading How to employ high leverage and not to lose your account ”
5 thoughts on “What is leverage in forex strategies”
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