Traders in Forex market a contract of currency exchange rates. As the movement of currency rates can be too small, traders in forex market use leverage to increase their profit
: For example
: You decide to open a contract for trade and it has these elements in it
The currency pair for trading GBP/USD
The direction of the trade - BUY Pound and SELL US dollars
The price - say 1.3700
The contract value - GBP100,000
As the trader, you purchase this contract, believing you will earn once you close (offset) the contract
If you are right (for example: the rate increased to 1.3800), then you would profit: for every euro in this contract you made profit of 1 US cent. In total, the profit would be $1,000 ...100,000 x 1 cent
? However, do you need ALL the GBP 100,000 to open this contract
The answer is: NO. You can LEVERAGE the trading: the trader is required to risk
For example: only 1:100 of the contract value. Accordingly, for a contract of 100,000 only $1,000 is needed. However, if there was loss, and the value of the whole contract dropped to 99,000, then the deal is automatically closed, since the “guarantee” made by the trader was only $1,000
With leveraged forex trading, you have more money to use for trading than the balance in your account because you can ‘leverage" what you do have that means you use what you have to increase the money you can trade and to increase your profits when you succeed in trading in the right direction of a currency pair. On the other side, when there is a loss... the higher the leverage, the quicker you are subject to automatic closure of your deal
? How does leveraged forex trading work
Leveraged trading works by establishing a rate you can use for every dollar in your account. The amount you put for the trade is the actual amount you risk. It is called ‘margin" or the amount you risk. we will talk about margin in a next article
For example: If you invest $100 and leverage it at 1:100, then you have $100 to trade for each $1 in your investment (margin). If you start trading with your $100 investment, you can buy up to a value of $10,000 ...100x100
You are advised not to risk more than you can accept to lose and you should be careful When you are using leverage in forex trading
No comments:
Post a Comment