Leverage in the financial market is a term used in any technique used to multiply the yield of the invested amount , in turn , the greater the leverage effect , the greater the risk .
The term leverage refers both to a mechanism assume greater position than the corresponding funds of an investor really has , and expected profitability of a financial derivative product of the forward transaction compared to the profitability of operations only in the underlying assets of such derivatives or those future .
The main attraction in the market Forex is the Leverage!
The leverage related to Forex is much higher than that offered in other financial markets such as the stock market or commodity markets.
The reason why is used in Forex leverage is to maximize their profits.
The high leverage that is available to the majority of users of various online trading platforms Forex is another of the great advantages of the Forex. The margin reach up to 1%, 2 % and 5 %, that is , it is only required deposit 1% (100: 1), 2 % ( 50: 1 ) and 5% (20: 1) the total amount of open positions ..
If want to open a position on the value of 1 million dollars, will have to spend 10, 20 and 50 thousand dollars, respectively. Thus, the negotiation on the basis of margins allows participants in the Forex negotiate much higher than the amounts deposited.
For example, with a margin ratio of 20: 1 and a deposit of $ 10,000, an investor / speculator can trade amounts to a maximum of $ 200,000. Such trading of large volumes allows higher profits / losses, even when the price variations are reduced.
Trading on Forex has an important feature that is leverage, which both can lead to huge gains and huge losses.
Leverage works as a loan that the broker makes to the investor, allowing you to take a position X times the invested capital.
The potential cash gains is constituted as an advantage of leverage, a small fluctuation contrary to the position taken can lead to total loss of the invested capital in the space of minutes, being even possible that the loss is greater than the capital invested in cases of extreme sudden fluctuations (in this situation the position is immediately closed by the financial intermediary, but the investor is responsible for the debt created).