Have you ever tried to find out the actual reason behind the growing popularity of Forex? Well, it is neither its 24 hours accessibility nor its adrenaline-inducing trading or the thrill. Then what it is? One thing: leverage.
Fx offers an exciting platform to earn money in less possible time. However, it involves various parameters and protocols that often make the journey troublesome. To get unbound successes in this market, one should understand forex leverage. Here, we aim at providing some important information, for those, who wants to see themselves successful in this business category. You will get here informative articles, blogs and news on forex leverage that will make you well aware of this tool.
What is leverage in forex trading?
This is a useful tool that allows you to get significant exposure in the market for a small initial investment. This indicates if the market moves in your favor, your net return would be greater than traditional trading and thereby magnified your net profit.
Similarly, if the market goes against you, there are higher chances of facing significant losses, and this may even exceed your initial investment level. Therefore, it is critical to understand your level of risk.
To precisely define forex leverage meaning, let’s cite an example here:
Example 1: Suppose you want to open a trade on USD/EUR worth 1 lot. Therefore, contract value will be $10,000, and the forex 500 leverage ratio will stand as 500:1 which means you need 0.5% of $50,000 as a deposit for opening a trading position.
Example 2: A trader wants to open a trade off worth Rupees 2000. For opening a position without leverage, the investor needs to make an investment of 2000 x50 = $100,000 US dollar in their account.
If the leverage stands for 100:1, the trader requires 1% to open a position which means with $1000 initial investment, the trader can get a greater exposure which is equivalent to $100,000 for that particular trade.
What is forex leverage benefit?
- Forex leverage allows you to get the most out of your investments by being able to trade for greater positions and making a small initial deposit.
- You can choose to take much larger positions that you cannot think of doing with physical purchases.
From the above definition and example, hope forex leverageexplained in a proper way. However, we believe, along with tool, must acquire sufficient information about margin forex which is the pre-requisite requirement to start as a fx trader.
Forex margin trading - a brief idea
This is the amount required to open a new position in the market. It is not a fee, nor is it a charge that you need to pay for opening your account. Rather it ensures that you have sufficient account balance as per the size of your trade. In short, the margin in forex is an important protocol in which you must gather knowledge to start your journey.
Forex margin requirements – check out what our experts say
The requirements vary depending on the type of accounts. Here, is an up-to-date requirement chart for simplified account:
- For standard accounts, the requirement is set at approximate 100:1 or 1% on major currency pairs.
- For mini accounts, the margin is set at estimated 400:1 ratio or 0.25%
However, if finds with requirements confusing and troublesome, can choose to trade with forex free margin. Yes! You heard right – free margin.
What is free margin in forex?
Free margin refers to available funds to trade on an account. These funds are not used as security in trades and thereby a trader can use it for any operation. The formula used to calculate:
Free margin = Equity – margin
What is forex margin call? How does it affect your trading position?
Margin call notifies about, when deposited amount fallen below the minimum required level. This scenario is also defined as your account is partially closed or liquidated. To avoid it, you need to learn to manage your account efficiently. Different technical analysis and money management techniques can help you managing your account.
Therefore, assuming that we have made a successful attempt to provide you basic information about leverage in forex trading, forex credit, and margin forex, to get more detail information about all these aspects, you can follow our articles, blogs and news that will keep you updated with changing conditions of market. So, here we all beginners.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.