Forex Trading: Leverage In Forex Trading

One of the reasons many people regard Forex as one of the most powerful investment is the power of leverage that it offers.

Leverage in Forex can be your best weapon but it is a double-edge sword.

Use it well and you will rip the fortunes that it brings but mess it up and you will kiss your hard earned cash goodbye.

Therefore, it is very important to understand the basics of leverage in forex.

here is a article from Investopedia that I consider useful to help a forex trader understand how leverage works in the Forex market.

Source: Investopedia.com

Leverage in trading simply refers to the ability to increase the size of your trade or investment by using credit from a broker. When trading using leverage, you are effectively borrowing from your broker, while the funds in your account act as collateral. This collateral is referred to as margin.



The amount of leverage available is based on the margin requirement of the broker. Margin requirement is usually shown as a percentage, while leverage is expressed as a ratio. For example, a broker might require a minimum margin level of 2%. This means that the customer must have at least 2% of the total value of an intended trade available in cash before opening the position. A 2% margin requirement is equivalent to a 50:1 leverage ratio. In practical terms, using 50:1 leverage, having $1,000 in your account would allow you to trade up to $50,000 worth of a given financial instrument. At a 50:1 leverage, a 2% loss in the instrument traded completely wipes out a fully leveraged account. Conversely, a 2% gain doubles the account.

Leverage by Market and Instrument

Leverage available differs substantially depending on what market you are trading and from which country you are based. For example, the degree of leverage available for trading stocks is relatively low. In the United States, investors typically have access to 2:1 leverage for trading equities, a margin level of 50%.


The futures market offers much higher degrees of leverage, such as 25:1 or 30:1, depending on the contract traded.

The leverage available in the forex market is higher still at 50:1 in the U.S. and as high as 400:1 offered by brokers internationally.

Leverage in Forex Trading

High leverage availability, coupled with a relatively low minimum balance to open an account, has added to the allure of the forex market to retail traders. However, excessive use of leverage is often and correctly cited as the primary reason for traders blowing out their accounts.


Read the whole article here. happy trading, Yours sincerely,




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