What is foreign exchange leveraged trading?
The traditional leverage is probably borrowing money to invest. But after adding financial derivatives, leveraged investment is no longer simply limited to the action of “borrowing money” when investing, but should be defined as: through a certain financial instrument, the fluctuation direction of the actual investment asset is completely one-way related to the subject matter , And the volatility rate (compared with the volatility rate of the original standard) is multiplied.
Leveraged trading is the use of small amounts of funds to invest several times the original amount. In order to expect to obtain a return rate of several times relative to the fluctuation of the investment target, or loss. Since the increase or decrease of the margin (the small amount of funds) does not move in proportion to the fluctuation of the underlying asset, the risk is high.
Leveraged trading is also called virtual trading and margin trading. That is, investors use their own funds as a guarantee to enlarge the financing provided by banks or brokers to conduct foreign exchange transactions, that is, enlarge investors’ trading funds. The proportion of financing is generally determined by the bank or broker. The larger the proportion of financing, the less funds the customer needs to pay.
What is foreign exchange leveraged trading?
How to calculate foreign exchange leverage?
If the leverage is large, the margin you need is less, and the remaining risk-resistant margin is relatively large
For example, take the account fund of 6000 US dollars, buy 1 Euro/US dollar drop as an example (one point is 10 US dollars):
1: 20 times leverage: occupies 5,000 US dollars of capital, and there is still 1,000 US dollars in the account that is active, which can resist the risk of 100 points. When the market price fluctuates up and loses 100 points, a margin call will occur and the system will force it for you Close the position. (Extremely risky)
1: 100 times leverage: occupies 1,000 US dollars of funds, and there is still 5,000 US dollars in the account that is active, which can resist the risk of 500 points. When the market price fluctuates up and loses 500 points, a margin call will occur and the system will force you to settle warehouse. (General risk)
1: 400 times leverage: occupies 250 US dollars of funds, and 5750 US dollars in the account is active, which can resist the risk of 575 points. When the market price fluctuates up and loses 575 points, a margin call will occur, and the system will force it for you Close the position. (The risk is relatively small compared to 1:20 and 1:100 times leverage)
From the above, we can draw the conclusion that under the condition of the same funds in the account and the same number of lots (1 contract is called 1 lot), the higher the leverage ratio, the lower the risk!
However, if the client uses a certain amount of margin occupancy to trade the number of hands, then it will appear when a certain amount of margin is occupied. The greater the leverage, the more hands will be traded and the greater the risk.
How to calculate foreign exchange leverage
In summary, we can see that leverage is a tool used by customers to trade, and the real risk lies in the customer’s trading psychology.
In foreign exchange trading, leverage and margin trading means that you trade currency pairs by borrowing from your dealer. Through foreign exchange leverage, you can increase your “trading strength”-trading with more funds than your deposit. Before you start trading with leverage or margin, please make sure you understand this trading method to ensure that you can fully profit from the transaction and calculate the risk.
You can get more profit and may suffer more losses
The purpose of margin trading is to expand your profit by obtaining a larger trading quota than your holding funds, but it also increases your risk. You need to keep in mind that your loss may be greater than your original investment.
Make sure you understand the risks of trading
The most important thing is that you need to choose a leverage ratio based on the net value of your account, and be careful not to choose excessive leverage. Through margin and leverage trading, you can greatly magnify your profits, but if the market is unfavorable to you, your losses will also be quickly expanded.
Your leverage list
• Your margin payable is the original deposit that you need to invest when you start trading with your dealer.
• Your foreign exchange leverage is the ratio of your margin payable to the total value of your position.
• Leverage will magnify your profit and loss at the same time.
• If you choose an excessive leverage ratio, you will face the risk of being liquidated by your dealer when the market moves against you.