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January 25, 2020

The Forex Market and its Exceptional Leverages

Leverage allows you to handle large positions with minimal investment money in your account. For instance, with a leverage of 10:1 and $10,000 in your account, you can have control of a position valued $100,000. Leverage opens the opportunity for currency trading broker to yield large amounts of profit, but also expose you to large amounts of risk.

How leverage maximizes returns

Leverage works like this: a leverage of 30:1 increases the potential return of your capital by 30 times. You could purchase $30 per pip if you had $15,000 in your account. Remove leverage and you can only afford $1 pip worth.

How leverage maximizes risk

Similar with how leverage increases your potential capital return by 30 times, it can gain you the same amount of loss for the small capital you invested should the market price move negatively.

For instance, 20 pips lost is merely $20 lost without leverage. But with leverage, 20 pips would amount to $600 with the ration being 30:1, so be careful when using leverages and take everything including the risks into consideration first.