What Is Financial Leverage, how's it work in forex

Understanding Leverage and Margin in Forex Trading

Leverage and margin are fundamental concepts in Forex trading, and understanding how they work is crucial for anyone looking to trade currencies in this market. Given that trading lot sizes can be relatively large, achieving significant profits typically requires a substantial amount of capital. To address this challenge, brokerage firms offer a service known as leverage, which allows traders to control larger positions with a smaller amount of capital, thereby increasing their purchasing power.

How can a trader with a small amount of capital achieve satisfactory profits in Forex?

Brokerage firms provide various levels of leverage, with common ratios including:

• 1:50
• 1:100
• 1:200

A leverage ratio of 1:50 means that every dollar of your capital can control $50 worth of a currency, while a ratio of 1:100 means that every dollar can control $100 worth.

This lesson explains these concepts in detail.

Enjoy the lesson!