The Benefits of Leveraging When Trading Forex

You’re not imagining it — Forex and electronic currency trading has only gotten more and more popular in the past few years.

In fact, in the first quarter of 2018, Forex trading hit a record high.

If you’re interested in entering the Forex market, we know that you have tons of questions about how it all works.

Understanding the idea of leveraging in Forex is absolutely key.

In this post, we’ll define Forex leveraging, and then cover why it’s such a popular strategy.

What Does Leverage Mean?

Before we talk about the benefits of Forex leverage, let’s talk about what exactly it means.

In the simplest possible terms, the idea of leveraging is the ability to borrow money so that you can make the kinds of investments that you want — even if you don’t have the financial liquidity to pay for an investment out of pocket right now.

The person who lends you the money is the Forex broker. Within the world of Forex trading, you might be surprised by just how much you’re able to borrow on margin.

If you need to determine that amount of margin-based leverage, you’ll just need to divide the total amount of your transaction by the margin requirement.

But if you need to calculate real leverage — so you can get a better sense of your potential profits and losses — the equation is different. To determine your actual leverage, you should divide the face/total value of your transaction by your overall trading capital.

Now, let’s take a look at a few of the many reasons why so many people are interested in leverage trading.

Understanding the Benefits of Leveraging

So, why has Forex leveraging become so popular in recent years?

First of all, it gives you the chance to make a lot of money out of only a small investment. Remember that the more leverage you take on, the lower the overall margin requirements will need to be.

However, the benefit here is that, as long as you work with an experienced account manager, the level of risk is much lower than with other kinds of investments.

Additionally, even if you don’t have the money on hand when you want to make the investment?

The main advantage of leveraging is that it gives you the chance to enter the market when the time is right. This simply isn’t an option in the majority of other trading markets.

For best results, the experts say that you need to make sure that you limit your overall leverage ratio to nothing greater than 2:1 per individual trade.

Ready to Try Your Hand at Forex Leveraging?

We hope that this post has helped you to understand that the concept of Forex leveraging really isn’t all that complicated.

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This article was written by our in-house forex traders with a combined 20+ years of experience in trading the financial markets.