As you can see in the example above, the leverage and margin requirements are closely linked. It uses the margin to create a leverage effect, and vice versa. In the Forex, when you perform a transaction with leverage, you give what is called a guarantee or a blanket, which is the margin, the percentage is set by the broker (margin requirements), and allows you to perform a transaction whose value is much higher than your capital. Depending on the products that you deal, the frequency of your transactions and your capital, Finotec offers several ratios of effects of financial leverage – up to 200 against 1.
This means that 1000 $, you can perform a transaction valued at $ 200 000. But it is important to note that although the leverage is an effective way to increase your power and your investment gains, it also implies a risk of equal magnitude, and may result in large losses. Thus, if the market moves against the predictions of the trader, the loss of it will be much higher than they would have been without leverage. For this reason, some traders prefer to test the market with a small effect and transactions of limited size. When they see that their predictions come true and that the market moves in their favor, they rush to increase the leverage to maximize their earnings potential. Traders should never forget that the leverage is a double-edged. That is why we advise investors to start on the forex to use low leverage.
A final word about the effect of leverage. As the margin, leverage can also be used on other transactions on the forex, for instance in futures (or futures) on raw materials, CFDs and options trading, I. Consider an example. A client wants to invest $ 2 000. It may invest in the purchase of 20 shares of a $ 100 unit, but may also invest in 10 CFD contracts on securities. In this way, it controls 100 shares for the same price (thanks to the leverage effect) rather than owns only 10 shares.
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I am a Forex Trader.I love currency trading. Article Source:http://www.articlesbase.com/currency-trading-articles/forex-leverage-and-cash-855127.html
