Leverage is a way for a trader to trade a larger volume than he/she owns using only his/her trading capital. You may need a surplus database in order to manage your data.
When you visit the sites dedicated to forex trading, you may have seen many flashy banners that offered something like leverage of 500: 1.
So, what does this mean?
To help you better understand the concept of leverage, here is an example.
Say a brokerage firm offers 1:500 leverage. By putting a hundred dollars, the trader can buy or sell currency for 50 thousand dollars.
It is worth noting that the investor cannot lose or withdraw virtual capital. Newcomers often forget this. Traders need to remember that when the transaction amount is higher than personal funds at the time of a losing trade, the speculator may lose his deposit.
How Forex Leverage Works?
High leverage is generally associated with the Forex market. So, here’s how leverage works in Forex.
Currency trading is carried out in the form of “contracts” for a certain number of so-called standard lots. Each lot is equivalent to 100,000 units of currency.
If the US dollar is used as the quote currency and the trader opens a position for one standard lot, then he buys or sells 100,000 units of this currency.
Since the course of the currency price is measured in points – that is, a share of 0.0001 corresponds to each point – when trading a standard lot, each point costs $ 10 (0.0001 x $ 100.000 = $ 10).
If the transaction brings 10 points of profit, then the trader earns $ 100. If the price goes 10 points in the opposite direction from the position, then the trader loses $ 100.
Concept of Brokers with High Leverage
Brokers offer high leverage as not everyone has a more substantial amount of capital of let’s say $100,000. When you use leverage when opening a position, you get borrowed capital, but this money does not come to your account.
However, you see how the current result for an open position is changing, because now each point is more expensive, and price movement in one direction or another can potentially bring higher profits or losses.
Another important thing is that brokers’ losses are limited by the size of the balance of the trader’s trading account.
As soon as the loss reaches the amount of money in the trader’s account, the broker will close all of his current positions. This will prevent the trader from losing more funds than he/she has in his account, and he/she will not owe money to the broker.
Different Brokers offer Different Leverage
Now that the concept of brokers with high leverage is clear, it is worth mentioning that all brokerage firms have different leverages. Some offer leverage of 1:100, and some give the leverage of 1:2000. So, as a trader, you need to decide which broker is perfect for you.
If you are in search of Forex brokers with high leverage, here is the list of reliable brokers.