Forex leverage: a great tool to make good Gains in the currency Forex market

By Alberto CA Cannata

Expert Author Alberto AC Cannata

Leverage Forex is one of the features that make the Forex market, one of the most attractive for speculators from around the world. Many traders have low capital to operate, and this is the first obstacle they face. In Forex, the problem is solved with leverage. Leverage allows anyone working with capitals more important compared with those available in the account.

To understand the concept, we start from the physical. With a lever, you can lift a weight with a little effort. In finance, with leverage, you can move large sums by using small quantities. The small amount of money is called margin forex. For example, you can open a position of $10,000, with only $50 to your account.

Leverage depends on the broker. Some brokers offer one 30: 1 leverage effect, other 100 and so on. leverage 100: 1 means that you can open a position of $100,000 with only $1,000. 30: 1 Leverage means that you need to open a position of $100,000, a margin of $3,333. Here a question arises: where does come the extra money? The answer is simple: the additional capital is lent by the forex broker.

Thanks to leverage a trader can open large positions and earn more money, but also lose more. In fact, forex leverage is a double-edged which must be handled with care. Let's consider an example in which a trader loses $250 on a capital of 1000 with a transaction of $50,000. It is the loss of 25% on the capital. If the merchant had all availabilities on the account (i.e. $50 000), the loss would have been 0.5%. It is true that in the case of profits, earnings are good, but in the event of loss, your capital is greatly reduced. It takes a lot of practice and make the odds in your favor.

There are many forex brokers that offers 200: 1 leverage, allowing you to open a position of $200,000 with an initial capital of $1,000. In these cases, however, you must be very careful.

Leverage is a tool that can generate really interesting gains for those who do Forex trading. In other words, it is like a lens that amplifies the effects positive or negative changes in exchange rates. With the leverage effect, you can move considerably higher than your actual investment money, even to exploit the slightest movements pips.

From this brief description, you can understand that leverage can be used as an instrument of speculation.

Leverage Forex is an excellent tool to make good gains in the foreign exchange market. To succeed, you must always use great caution and carefully study the foreign exchange market. You can read more about leverage to totradeforex (my site).