Leverage on Forex Trading
Trading Leverage Forex advantages provided by the forex market include leverage that you can use to increase profits. Taking leverage 100 means we can trade up to $ 100,000 with a capital of only $ 100. But leverage can also make us bankrupt or lose capital if not used wisely.
Leverage is a debt that a broker gives us, for example, if you have a capital of $ 100 and want to trade up to $ 100,000, the broker will be willing to lend a shortfall of $ 99,900, the name is also debt, so we have the obligation to return it.
The amount of leverage you can set when opening a forex trading account for the first time with the regulation of intensity of change in leverage for each day depending on the policy of each broker.
We need to remind you that the magnitude of leverage needs to be controlled because in addition to traders can increase the profit of forex transactions with leverage but can also make traders go bankrupt immediately because the percentage of failure and success is equally large when using leverage .
So leverage is the leverage to manage something bigger. Let’s say you want to buy a used car for $ 10,000 to resell. Because it only has a capital of $ 200 then you are looking for a loan to the Bank for $ 9,800 to buy a used car.
In this case your leverage of 50: 1 is obtained from the price of the car divided by venture capital. If you want to make a profit, the used car must be sold at a price greater than $ 10,000. For example, if you are able to sell a car for $ 11,000 then your profit from buying and selling used cars is $ 1000 (500%) with a capital of only $ 200.
What if the used car only sells for $ 9,900 then you will lose $ 100 (50% of the capital of $ 200) with details of the selling price of the car minus the bank’s debt ($ 9,900 – $ 9,800).
What if it turns out you don’t want to sell the used car and the price of the car on the market falls at $ 9,800 and the bank knows the price. Because the bank does not want to lose then your used car was liquidated (sold forcibly) at a price of $ 9,800 so you will lose the $ 200 capital.
So that’s the bright and dark side of leverage provided by brokers in the forex market so be careful using it. Like your car can go up to a maximum limit of 300 km / hour but that does not mean you have to use the maximum speed of your car on every street.