What is Leverage? Forex Basics

Forex Educational Video Series

What is Leverage in Forex trading?

Leverage in forex is like a “loan” that the broker gives the trader so that the trader has more capital to trade with than what he or she initially deposited. It’s represented in the form of a ratio. Some leverage levels that FXTM offers (depending on the client’s knowledge and experience) include 1:50, 1:100, 1:200 and 1:500. Here’s an example of how leverage works: let’s say a trader has a trading capital of €10,000 and is trading with 1:100 leverage. According to his leverage, his trading capital is increased a 100 times, which means he has €1,000,000 (10,000 x 100) to trade with. If he decides to buy the EURUSD at 1.3055 and close his position at 1.3155, he will have almost doubled his capital! ((1.3155 – 1.3055) x €1,000,000 = $10,000).

On the other hand, if this same trader buys the EURUSD at 1.3055 but closes his position at 1.3005, he will have lost almost half his capital. ((1.3005 – 1.3055) x €1,000,000 = -$5,000). It’s very important to remember that, while leverage can increase your capital and give you opportunities to multiply your profits, it can multiply your losses too. Therefore, you must use leverage wisely!

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

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Risk warning: Trading is risky. Your capital is at risk. Exinity Limited is regulated by FSC (Mauritius).