What does leverage ratio mean? Is Forex Leverage High or Low?

What does leverage ratio mean? Is Forex Leverage High or Low?

The leverage ratio is a very important indicator in the financial industry, which can reflect many problems, and the leverage ratio also exists in the foreign exchange market. If you want to do a good job in investing, it is necessary to understand the leverage ratio. So what does the specific leverage ratio mean, and whether the foreign exchange leverage ratio is high or low? This article will give you a detailed introduction.

leverage ratio

Leverage generally refers to the ratio of equity capital to total assets on the balance sheet. The leverage ratio is an indicator that measures the risk of a company's liabilities and reflects the company's repayment ability from the side. The inverse of the leverage ratio is the leverage ratio. Generally speaking, the leverage ratio of investment banks is relatively high. The leverage ratio of Merrill Lynch was 28 times in 2007, and the leverage ratio of Morgan Stanley was 33 times in 2007.

The simple understanding of leverage ratio is that a sum of money is loaned, and then the two sums of money are combined, thus forming a fund with a leverage ratio. For example One day, A saw a stock, and he only had 100,000 yuan, so he borrowed 400,000 yuan to make up 500,000 yuan, and his leverage ratio was 400%. Leverage generally refers to the ratio of equity capital to total assets on the balance sheet. The leverage ratio is an indicator that measures the risk of a company's liabilities and reflects the company's repayment ability from the side.

If the leverage ratio is used well, it is extremely beneficial to the survival and development of the company, because the leverage ratio can supplement the basics of the company and make its operation smoother and more convenient. Of course, the leverage ratio will also increase the risk level of a company or individual. Once the market fluctuates to a large extent, investors or companies on the market may suffer heavy losses or even go bankrupt.

Forex leverage is high or low

Because the leverage of foreign exchange is only related to the margin occupied by investors when operating transactions and has nothing to do with the cost and profit and loss of investors. The leverage that is used more is 100 times, so let me explain to you the next leverage. Small difference:

1. If the leverage is too large, then the investor will occupy a small margin, and they will do other products without realizing it. If they place more orders and have more positions, they will occupy the same amount of margin.

2. If the leverage is too small, then the investor will occupy a large margin, and the margin occupied will be large, and the remaining funds that can resist market risks will be relatively small, and the remaining funds will be small, which is not conducive to controlling the market trend.

Now everyone should know what leverage ratio means! Foreign exchange investors should note that foreign exchange is a margin transaction, so it is particularly important to use leverage flexibly and appropriately in margin trading. Leverage is a double-edged sword. Using leverage well can help you win calmly in trading. If you don't use it well, leverage will put investors in a desperate situation.