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Leverage

Leverage in forex is a way for traders to borrow capital to gain a larger exposure to the FX market. With a limited amount of capital, they can control a larger trade size. This could lead to bigger profits and losses as they are based on the full value of the position.

Trading with leverage in forex, which is also referred to as forex margin, means you can magnify profits if markets move in your favour; however you can also lose all of your capital should markets move against you. This is because profits and losses are based on the full value of the trade, and not just the deposit amount.

Forex trading comes with some of the lowest margin rates in the financial markets. The leverage difference between forex and stocks, for example, is much higher. Stock market leverage starts at around 5:1, which makes trading within the share market slightly less prone to capital risk.

The capital accessible to an investor (including leverage) to buy securities.

A fundamental indicator for in-vestors, Coverage represents the ratio of the net account balance to the leveraged amount and the money owed.

If coverage or risk ratio falls below a certain threshold, the platform will issue a margin call to position. During margin calls, the platform will close placed market orders that haven’t yet been executed. If the leveraged amount cannot be recovered completely, even after canceling these pending orders, the investor’s positions are automatically closed in a specific sequence. Investors must manage their own market risks, closing positions before the coverage ratio reaches the minimum required level.

How does leverage trading work?

Understanding how leverage works is vital for any trader looking to take advantage of this strategy. When you trade using leverage, you’re essentially borrowing money from your broker to increase your position size. For example, if you’re selling $1,000 with 2:1 leverage, you can buy $2,000 worth of assets.

You’ll make a profit if the trade is successful and the asset’s price goes up. However, if the asset’s price falls, you’ll make a loss.

This is because you’re responsible only for the initial margin put down to open the trade. The broker covers the rest. This means that you can make a lot more money than if you were just trading with your own capital, but it also means that you’re at greater risk of making a loss.

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