Leveraged trading, or trading on the margin,
allows the trader to open larger positions than his own fortune would otherwise
allow him. In most forex pairs, the maximum leverage that can be employed is
400:1;
meaning that for every $400 of worth in the position, the trader will
need to invest $1 out of his account. Therefore, if he wishes to buy 10,000
units of EURUSD in the price of 1.2356, instead of paying $12,356 he will pay
only $30.89, which is 0.25% of the price, or a 400:1 ratio. It is important to remember
that the profits and losses are determined by the position size, and as
leverage trading can magnify profits also losses can be enhanced.
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