What is leverage in Forex?
Leverage is a facility that enables you to get a much larger exposure to the market you’re trading than the amount you deposited to open the trade. Leveraged products, such as Forex trading, magnify your potential profit - but also increase your potential loss.
Leverage works by using a deposit, known as margin, to provide you with increased exposure to an underlying asset. Essentially, you’re putting down a fraction of the full value of your trade – and your provider is loaning you the rest.
Leverage and risk management
Leveraged trading can be risky as losses may exceed your initial outlay, but there are risk-management tools that you can use to reduce your potential loss. Using stop-losses is a popular way to reduce the risk of leverage. Attaching a stop-loss to your position can restrict your losses if a price moves against you. However, markets move quickly and certain conditions may result in your stop not being triggered at the price you’ve set.
Leverage is a facility that enables you to get a much larger exposure to the market you’re trading than the amount you deposited to open the trade. Leveraged products, such as Forex trading, magnify your potential profit - but also increase your potential loss.
Leverage works by using a deposit, known as margin, to provide you with increased exposure to an underlying asset. Essentially, you’re putting down a fraction of the full value of your trade – and your provider is loaning you the rest.
Leverage and risk management
Leveraged trading can be risky as losses may exceed your initial outlay, but there are risk-management tools that you can use to reduce your potential loss. Using stop-losses is a popular way to reduce the risk of leverage. Attaching a stop-loss to your position can restrict your losses if a price moves against you. However, markets move quickly and certain conditions may result in your stop not being triggered at the price you’ve set.