It is leverage trading that enables you to open huge deals with a comparatively small investment, therefore maximizing the trading power, however, also the risk. Why? That’s because when you go on to use the high leverage, both unsuccessful and successful deals are, in simplistic terms, amplified.
Here is an instance: Let’s just say you go on to invest 100 dollars in the popular currency pair: USD/EUR. With max leverage of about 400:1, one can begin a deal that’s worth 400x the initial stake, which is 40,000 dollars.
Understanding The Margin
Now that you have understood leverage, let’s try and take a look at another aspect of the equation: The Margin, which means the funds one requires to have in their account to open a particular deal. Margin lets you open huge deals with the small investment then acts as the collateral to cover the potential losses. In a previous instance, one can reverse the very same statement: To open the 40,000 dollars deal, you require a 0.25% margin, which’s about 100 dollars.
Well, different brokers need different sets of margin for distinct tools – depending on the volatility and other factors.