Leverage is a renowned term in the foreign exchange world that is the ability to use something small to win something big. It is a tool that provides a chance of borrowing money from the brokerage house to trade large positions in a currency.
Hence, it magnifies results from favorable movements in a currency’s exchange rate. Now, how can this amazing tool help you to win big? Keep on reading to find the answer.
Importance of leverage in profit generation
Maximizes your control
The first and foremost factor of leverage that helps the trader win big is its ability ti maximize your control, making the rather boring market incredibly exciting. We are saying this because, without leverage, traders would be shocked to see a 10 percent movement in their accounts in a year. However, when traders use leverage, they can easily observe a 10 percent movement in a single day.
Typical leverage amounts tend to be too high. Therefore the trader needs to know that much of the volatility they experience is due more to the leverage on their trade than the mover in the underlying assets.
The leverage ratios
Another important factor that can help you to generate profit in the forex world is a wide variety of ratios for you to choose from. Details of each are mentioned as under
50:1– this leverage ratio means that you have a trade of $50 for each $1. Hence for a deposit of $500, you will be able to trade up to $25,000
100:1– this leverage ratio means that for every single dollar, the trader will be able to place a trade of up to $100. This is the typical amount of leverage offered on a standard lot account.
200:1– the leverage of 200:1 indicates that the trader can now place a trade of $200 for every dollar. This type of leverage ratio is mostly offered on a mini lot account. The required minimum deposit is generally lower than that on a standard lot account.
400:1– this type of leverage allows the trader to place a trade of up to $400 for every $1. However, this type of ratio is provided by only a small number of traders and has to be on big accounts.
However, to reap maximum benefits from forex and leverage, a trader needs to learn about market structure forex. It is a tool that defines the behavior condition and the current market flows. Moreover, it also highlights support, swing lows, and swing highs while following the trend.
Conclusion
Leverage is one important tool of foreign exchange markets that helps traders control higher values than what they have in their accounts. The same is why it is helpful for traders to win big in the market.
The main secret to success lies within the diverse variety of leverage ratios that it offers, details of which we have mentioned above. Nevertheless, learn about forex market structures to assure a maximum profit.