Forex Leverage Explained

What is Leverage?

Leverage is the technique of using a loan in order to increase the size of a trade or investment, which in turn increases the potential risk and reward. Common examples may be a company borrowing money in order to fund investment in a new shop or factory, or a homeowner using a mortgage to finance a property which they hope to sell at a profit.

In foreign exchange markets the rate may only change by a fraction of a penny a day, so in order to boost potential earnings a broker will offer a loan to a trader to multiply the size of their trade allowing bigger gains from a smaller position.

How is Leverage Implemented in Forex?

The Best Forex Brokers + Trading Platforms

Rating Bonus Description Minimum Deposit Regulation Visit
5
  • Choice of two professional trading platforms – TraderPro and MT4
  • Free trading course for deposits over £1,000
  • Choice of Forex, CFDs, Spread Betting and Cryptocurrencies

€100

FCA

Visit Broker
ETX Capital Review
5
No Deposit
£25
+Deposit Bonus
  • Free forex signals + market research
  • Online education and webinars
  • Fee free withdrawals and deposits

$5

CySEC

Visit Broker
XM Review
5
  • The leading Social Trading platform with 4.5m traders
  • Follow other traders or be a leader
  • Personal service and VIP perks

$200

FCA,

Visit Broker
eToro Review
Risk Warning: Your capital is at risk
5
No deposit
£20
+ Up to £6000 on deposits
  • No commissions and low spreads
  • Advanced trading tools
  • Minimal account fees

€100

FCA,

Visit Broker
Plus500 Review
4.5
  • Stylish & Powerful Platform
  • Trade Bitcoin + 12 Other Top Cryptocurrencies
  • Plus Forex, Options, Stocks & ETF Trading

$10

IQ

Visit Broker
IQOption Review
Risk Warning: Your capital is at risk
4.5
Deposit Bonus
10%
+ Cash rebates on trades
  • World class trading platform
  • Expert market analysis
  • FCA Regulated and traded on the LSE

0

FSA

Visit Broker
LCG (London Capital Group) Review
4.5
Up to
50%
Deposit Bonus
  • Trusted, regulated broker with 10 yrs experience
  • Multi award winning company
  • Segregated accounts with leading banks

$100

Visit Broker
AVATrade Review
4.5
Sign Up Bonus
$25
+50% Deposit Bonus (ex-EU only)
  • Free Guaranteed Stop Loss
  • Segregated funds at top tier banks
  • Fixed spreads & negative balance protection

$100

ASIC

Visit Broker
Easy Markets Review
4
No deposit
$123
+100% on every deposit
  • Split second execution
  • No requotes
  • Range of accounts

$5

IFSC

Visit Broker
FBS Markets. Review
3.5
No Deposit Up To
$100
+55% Deposit Bonus
  • 'Asia's top broker'
  • Wide choice of leverage options

$1

RAFMM

Visit Broker
InstaForex Review
3.5
Up to
50%
Deposit Bonus
  • Instant fund withdrawals - no commissions
  • Tight spreads from 0.1 points
  • Unlimited leverage

-

FDR (

Visit Broker
EXNESS (NZ) Ltd. Review
3.5
Super Charged
100%
Deposit Bonus
  • 8 Trading Platforms
  • Spreads from 0.1 Pips
  • $0 fees on deposits

$5

FSC

Visit Broker
HF Markets Ltd. (HotForex) Review
3
Up to
100%
Deposit Bonus + Cashback
  • Trusted by 100,000s of traders
  • Fully licensed in the EU by CySec
  • Tight spreads and fast withdrawals

$100

FSC

Visit Broker
FXPrimus Review
3
  • Tight spreads without commissions
  • Advanced charting tools

$100

CySec

Visit Broker
Markets.com Review

The use of leverage is a key aspect of Forex trading.

Forex trading contracts are very large, but brokers permit their clients to access small parts of them using leverage.

When an investor first opens up an account with a broker, one of the first options to be chosen is the level of leverage obtained.

Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the position the investor is trading.

Leverage of 200:1 is usually used for positions of $50,000 or less. Many traders have “mini-accounts,” so that, to trade $100,000 of currency, with a margin of 1%, an investor will only have to deposit $1,000 into his or her margin account.

The leverage provided on a trade like this is 100:1. Leverage of this size is significantly larger than the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market.

This would ordinarily seem terribly risky, but traders are never asked to “cover their margins” in forex trading.

Currency prices usually change by less than 1% in a given day. Should a major shift take place, the broker has an automatic “stop” in place that will prevent your account from losing more than the cash or credit it has in place.

This is why it is difficult to trade forex with less than US$10,000 (or the equivalent) on hand even in a mini-account – a sizable shift in the value of one currency can devour all the money in an account in a matter of seconds.

To avoid such losses, forex traders usually implement a strict trading style that includes the use of stop and limit orders.

 
English

Related Articles

  •   What about Demo Trading? Many forex trading sites offer demo trading to get you started. There is nothing wrong with this. The intention is...
  •   How are Currencies Priced? When the price of a currency is quoted, it is quoted in terms of a pair with another currency. All forex is...
  • Margin explained   Margin trading is the practice of buying or selling financial instruments on a leveraged basis, which enables clients to open...
  • Trading Forex is not, strictly speaking, an “investment,” in the sense that investing in a bond or a stock is. Traditionally an investment should be...
  • Before you begin spread betting it is important that you fully understand the risks involved. Spread betting is a leveraged product With any...
  • It is possible to make a regular income out of forex trading. To do so, however, means putting a substantial amount of capital on the market, and...
  • The number one goal of every investor should be to make money. EToro’s social trading network is designed to help investors to become successful...
  • What is financial spread betting? Financial spread betting provides the ordinary investor a tax efficient opportunity to speculate on fluctuations...
  •   What is a Stop Loss? Forex trading is terribly rapid. In the space of nano-seconds, millions can change hands – this doesn’t just...
  • The Premium Account allows traders to have access to benefits and services that are not offered on other accounts. This account is designed to cater...

Risk Warning

Your capital is at risk. Trading in Forex and Contracts for Difference (CFDs) is highly speculative and involves a significant risk of loss.  The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This website is provided for informational purposes only and in no way constitutes financial advice. A featured listing does not constitute a recommendation or endorsement.

About ForexTrading.Company

Forex Trading.Company was established to provide global traders a deep and insightful source of information on forex trading, its key strategies and indicators. With guides for everyone from beginner traders in Bangladesh to advanced strategists in Hong Kong we want the world trading community to benefit from our in-depth broker reviews, features, and commentary. We list the world's top regulated and authorised brokers suitable for a global audience.

We aim to think global, act local with our website, so that whether you're in Asia, Europe or Africa you can gain from our content on the world's biggest market.

About Us & Contact Sitemap