Leverage is a strategy of using borrowed money to increase the potential return of an investment.
Leverage provides the power to open significantly large positions with a relatively small deposit. It helps you get a larger exposure to the market that you’re trading and make maximum use of your capital. Leveraged products, such as CFDs, maximize your potential profit – but also your potential loss.
Let’s say you want to trade the EUR/USD currency pair and the amount you want to invest in that position is €1000 and you decide to buy €100,000 worth of EUR/USD. If you choose a leverage of 1:100, the value can be as much as 100 times your initial deposit.
INGOT Brokers requires you to make a minimum deposit to hold this position. This initial deposit is your margin requirement. Essentially, you’ll need to have sufficient funds in your account to maintain open positions and cover possible losses. The total exposure of your trade compared to the margin is known as the leverage ratio.
Leverage allows you to increase your ‘trading power’ – giving you more money to trade with than your initial deposit. Trading leveraged products can also result in losses that exceed deposits. Before you use leverage, make sure you understand how it works so you can make the most of your trading while controlling your risk. There are many risk-management tools that can be used for reducing the chances of potential loss such as the use of stop and limit orders.
Most of the leveraged trading uses derivative products, meaning you trade an instrument that takes its value from the price of the underlying asset, rather than owning the asset itself.
A contract for difference (CFD) is a popular form of derivative trading. We offer CFDs across different asset classes including Forex, Indices, Stocks, Commodities, Cryptocurrencies, and ETFs.
Leverage is a very powerful tool in the hands of traders as it allows them to access a larger portion of the market with a smaller deposit. Before you trade on margin, make sure you have a strict strategy in place that involves risk management tools such as a guaranteed stop to lock in profits and limit losses.