A Guide to Understanding Leverage in Trading

A Guide to Understanding Leverage in Trading

Leverage is one of the distinguishing factors of the Forex trading market, one that makes investing in this platform more lucrative and risky at the same time. When applying it, traders essentially use borrowed capital to magnify avenue for profits.

However, it comes with an increased potential for losses as well and is, therefore, to be used with consideration. It is also a common trend in online trading in Nepal, considering that margin accounts are also gaining prevalence in the field for those pursuing trading.

Types Using leverage in online trading allows a person to control larger sums of capital than they actually invest. As mentioned before, this gives them the potential for increased profits while also amplifying the risk on a proportionate scale.

Effective leverage This a term used for the degree of leverage that an account utilizes to control the consolidated volume of positions that the trader has set up in his/her account.

This figure is expressed in a ratio, depicting the total positions to the total margin.

Available leverage

This is a term representing the scale available to the trader for usage.

Maximum leverage This would depict the total amount of leverage that a broker makes available to his trader.

Calculating different types For calculating the above-mentioned values, one can use basic calculative methods efficiently. First, you would need to input the different values and the required formulas in a document. And then, using a calculator can bring about the necessary values for effective/maximum/available leverage.

Margin accounts Small-scale traders usually set up a margin account and invest a deposit of money within it. This account would be allotted a large degree of leverage under the conditions of the broker. Brokers usually allow clients to use significant levels, enabling them to utilize portions of their deposited money to control positions.

Conclusion: Understanding leverage is crucial to better performance in Forex. This exchange offers more opportunities and instruments for making profits, but one needs to use them meticulously to minimize risk. If you need assistance in this regard, then engage with a leading brokerage to take you deeper into this field. WesternFX has allied with clients across the world and is one of the premier brokerages for Forex trading in Nepal. If you want to enhance your skills in this business, then get in touch with us!