Recently, the popularity of trading in the foreign exchange market has been growing. The terms of transactions within the framework of Forex attract not only by the availability and ability to earn money without leaving your home, but also by attractive offers from brokers. One of them is leverage. Forex is an opportunity to earn on currency fluctuations. Not every day, the foreign exchange market can please traders with powerful fluctuations in quotes. To make a substantial profit on those minor disturbances in the sea of currencies, it is necessary to carry out transactions in rather significant amounts. As a rule, a private investor does not have such opportunities.
The attractiveness of working on Forex lies precisely in the fact that a trader is given the opportunity to open a significant trading position using a broker pledge. This is precisely the leverage. Forex allows you to provide positions of greater value due to the provision of additional financial funds from the broker, which can be used purposefully to carry out trading operations. The increase in estimated profits, respectively, leads to an increase in the size of possible losses. But this is the talent of the trader, so that skillfully maneuvering in constantly jumping exchange rates, lose less than win.
Starting to trade in the Forex market, the parties specify the leverage at the time of opening an account. Typically, this ratio is up to several hundred to one. This means that having only one dollar in the account, the investor gets the opportunity to open a position for several hundred dollars. There are a number of reasons why a broker offers a leverage to a trader. Forex as a market gives a real opportunity to earn money, and the percentage of the investor’s profit goes to the broker. Also, the trader gets the opportunity to make several transactions. We can say that such a leverage is a significant help, providing a successful start for most beginner investors.
Let's try to figure out how leverage works using an example. The forex account of the trader is $ 1,000, the leverage provided is 100: 1. Buying GBP for USD at the price of 1.4349, the investor really gets the opportunity to operate with an amount of 143490 GBP. Changes in quotes even by a few points will result in either a profit or a loss of tens of dollars.
When operating on the market, it should be borne in mind that the so-called collateral margin with a positive outcome of the transaction significantly increases the investor's profit, but at the same time, a negative result leads to an increase in losses. In margin trading, a trader who places collateral is given the opportunity to manage targeted loans that are allocated against this collateral.
At the same time, he guarantees with his deposit reimbursement of possible losses on the
currency positions opened by him
.Also, the trader is faced with the task of constantly monitoring the remainder of the margin and not forgetting about stop orders, because it is thanks to them that you can limit losses. Otherwise, you may find yourself in a situation when all open positions are automatically closed when the capital in the account falls below a specified level, which is what Margin call received.