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What does foreign exchange leverage mean and how can investors use foreign exchange leverage?

2022-01-19
1714
The reason why financial investments have high returns is because of the leverage effect in them, so that investors can get larger returns from small investments. There is also a leverage principle in the foreign exchange market. This article will introduce what foreign exchange leverage means and how investors can use foreign exchange leverage.
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What does foreign exchange leverage mean?
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Leverage in foreign exchange is equivalent to a tool that can reduce the amount of funds invested in contracts of the same price by a certain proportion. In foreign exchange trading, what we call leveraged foreign exchange trading is essentially foreign exchange margin trading.
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As a foreign exchange trading investor, the leverage ratio we can choose is usually between 20 times and 400 times, and the standard contract in the foreign exchange trading market is 100,000 US dollars per lot (the base currency, usually the currency pair before the currency), if If the leverage ratio you choose is 20 times, then a margin of USD 5,000 is required for buying and selling one lot; if the leverage ratio is 100 times, a margin of USD 1,000 is required for buying and selling one lot.
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For example, if an investor is in the foreign exchange market, and their margin is $1,000, they can have the opportunity to use funds higher than $1,000 to trade foreign exchange, and they may have the opportunity to use funds of $10,000 or even $100,000. Forex trading, and if investors use foreign exchange leverage to trade foreign exchange, if they trade successfully, their trading income will be doubled. If investors do not use leverage in foreign exchange trading, they will The trading income of the FX is likely to be lower, and if investors use foreign exchange leverage to trade foreign exchange in their trading, their returns will also be higher.
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When investors do not use foreign exchange leverage, their trading income may be $30.
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If an investor used 100:1 leverage on the same trade, their trade gain would have turned into $3,000.
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How can investors use foreign exchange leverage?
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1. Choose the best broker to open an account
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If investors want to trade forex leveraged trading, they should choose the best broker. Such brokers can give investors more advantages in trading, and the best brokers can provide investors with the most guaranteed leveraged trading accounts. , Investors invest their funds into such margin trading accounts, investors do not have to worry about the safety of trading funds, such trading brokers can protect investors’ funds from being misappropriated and swallowed, and investors can use the most The best trading account for foreign exchange trading, so that you can have more opportunities for foreign exchange leveraged trading.
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2. Reasonable use of leverage
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If investors want to successfully use foreign exchange leveraged trading to gain income, the first important thing to know is to use the most advantageous leverage amount. Before understanding such content, investors should understand the role of leverage. There are many All novice investors will think: Since leverage allows investors to make small and big transactions, investors can use very low trading funds to obtain a lot of trading returns. Therefore, the higher the trading leverage used by investors, the better. In fact, this is not the case. Investors' understanding is one-sided. Investors should use a reasonable amount of leverage, so as to have the opportunity to obtain trading income from the foreign exchange market. Investors need to know that in the foreign exchange market, foreign exchange leveraged trading can not only Give investors the opportunity to gain more trading profits, and also allow investors to lose money in trading.
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Regarding the issue of foreign exchange leverage, this article introduces what foreign exchange leverage means and how investors can use foreign exchange leverage. In a word, foreign exchange leverage is a double-edged sword. Therefore, investors need to take advantage of its advantages and avoid its disadvantages. They should use the leverage amount that is most advantageous to investors for foreign exchange transactions.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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