How does leverage work?

<p>Leverage works by using a deposit, known as margin, to provide you with increased exposure to an underlying asset. Essentially, you’re putting down a fraction of the full value of your trade – and your provider is loaning you the rest.</p>

<p id="isPasted">The ability to control something large with something small is the power of leverage in forex trading.</p><p>With forex leverage, you can make big positions with a small amount of capital thanks to your broker's short-term loan.</p><p>New investors may find the forex market boring because the exchange rates move slowly in comparison to the stock market. However, what makes the currency market one of the most liquid and opportunity-rich markets in the world is leverage.&nbsp;</p><p>&nbsp;Generally, leverage is provided in a fixed amount, which can vary depending on the broker. Rules and regulations vary by broker. In general, 50:1, 100:1, 200:1, and 400:1 is used.</p><p>Leverage of 50:1 means that for every $1 you have in your account, you can trade up to $50. For example, if you deposit $500, you can trade amounts up to $25,000.</p><p>With 100:1, you can trade for every $100 you have in your account. The following ratio represents a typical amount of leverage offered by a lot account. If you deposit $2,000 in a standard account, you could manage $200,000.</p><p>Using 200:1 leverage means you can place trades worth $200 for every $1 you have in your account. A mini lot account offers a 200:1 leverage ratio as a typical amount of leverage. In order to trade with this account, you must deposit at least $300, with which you can trade up to $60,000.</p><p>Leverage of 400:1 means that for every $1 in your account, you can place a trade worth $400. Several brokers offer 400:1 leverage for mini lot accounts but beware of any broker who offers this level of leverage for such a small account. If someone deposits $300 into a forex account and tries to trade with 400:1 leverage, they might be wiped out within minutes.</p>

<p>Leverage in forex trading is the capital that you borrow from your broker for the short term which enables you to control a big position with a relatively small capital and maximize your profits. It means that you can have a small amount of capital in your account, controlling a larger amount in the market. Leverage works by using a deposit, known as margin, to provide you with increased exposure to an underlying asset.&nbsp;</p>

<p>Leverage is the strategy of using borrowed money to increase return on an investment. If the return on the total value invested in the security (your own cash plus borrowed funds) is higher than the interest you pay on the borrowed funds, you can make significant profit.</p>

<p>The more leverage, the greater returns can be, but the losses can be larger as well. Leveraging your investment essentially makes the return more volatile, and if you can’t stomach the risk, don’t bother. If you own less risky investments than only individual stocks (and we hope you do) it makes little sense to lever your investments.</p>