Understanding Leverage in Forex Trading Accounts

Understanding the term “leverage” when it comes to the Forex market is more than important. Leverage is a vital part of Forex trading. Each trader should know how it works and how to use it before beginning any Forex market trading. For investors in the Forex market what you need to know is this: Forex brokers (people who buy and sell assets for others) provide their customers (that’s you) with an option to use borrowed capital to trade on. This furnishes a Forex investor with potentially thousands of dollars to invest in currency pairs and make significant profits. Here’s how leverage works: you invest, for example, 1USD in the market. Your broker invests 100USD. The ratio stays the same, so if you invest 100USD, your broker will invest 10,000USD.

Needless to say, this is an extremely risky way to invest. It only takes a small ripple in currency rates for your borrowed capital to be wiped out. Then again, the profit potential is huge if that ripple travels in your favor. We strongly recommend that you start investing your own money – remember, that can be as little as 25USD – before you contact a broker and start using leverage to invest in the Forex market. A simple whim of the market could either make you rich very quickly or poor very quickly.

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