Forex leverage is one of the outstanding features that Forex market has. it maximizes your potential of profit. What is leverage? Please imagine a situation, you want to buy a 200k$ Ferrari , but you don’t have enough money to do this, you just have 20k$, but you want that car
what can you do ?
You can borrow 180000$ from a bank or a company, and purchase your desired car You have 20k$ and purchase 200k$ car, you multiple your money to 10…your money * 10 In other words, you use leverage one to ten, or 1:10 It’s leverage, you can buy more with money that doesn’t belong to you. But you can purchase your needed assets and make profit on whole price, whole amount, not just your money For example, you have 1000$ in your trading account Without leverage, you can buy 0.01 lot gold by your 1000$ In other words, each 1000$ approximately equals to 0.01 lot without leverage
But what if we want to use leverage Basically, the leverage of Gold, Oil, silver, currencies and etc…are 1:100 Outstanding
- What if we use leverage 1:100 in our last example,
- We have 1000$ in our trading account
- And we use 1:100 leverage
- With 1:100 leverage
- We can purchase 100k$ with our 1000$
- In other words, we can trade 1 lot with 1000$
How does Forex leverage work?
We have 1000$ in our account, and we loan to you 99000$,without any interest rate, just for trade. It’s leverage Another example, we have 1000$ in our trading account, and purchase 1 lot( 100000$), in 1320 After two days, the price of Gold rises to 1340$ It’s 20$ change, or 200 pip change If we calculate it, we make 2000$ profit, but we have 1000$ in our account, and now make 2000$ profit, to sum, our balance is 3000$
How???
Because our money is 1000$, but our trade volume is 100000$, we borrow 99000$ for trade, and now we make profit and give back their money It’s breathtaking Please notice that if the market move to opposite direction of your trade, you just lose your money, but the money of loaner is safe For example, we have 1000$,purchase 1 lot gold in 1320, and gold falls to 1310, your trades close automatically It’s a great opportunity that if you have a good vision about an asset, you can trade it without leverage, but please notice that using highest leverage is risky. To read about ITBFX accounts, click here or:
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