financial leverage is an instrument that allows you to obtain a high exposure to the financial market, despite having a small amount of capital to invest. Thanks to leverage, even small traders are given the opportunity to invest large sums of money, opening the position with a small part of the capital.
The functioning of the financial leverage is quite intuitive: the broker with whom you work will pay the part of the money necessary to open the position, asking for a security deposit.
In order to offer access to leverage, the broker only asks for a security deposit, a guarantee for the money obtained by the trader.
In the Forex market, the use of leverage is essential, given that large investments are required to be able to make a good profit. The ratio for opening a leveraged position is therefore one of the highest in the financial markets and even reaches 500:1. The more experienced traders, investing with leverage, are able to maximize their earnings, although the initial investment is small.
The deposit required to get the leverage money depends on the broker you are using.
Let’s take an example of a security deposit for leverage so that it’s clear how it works. If the leverage of the broker you use is 100:1 and you want to open a $100,000 position, it means that there must be 1% of the money in your account to dedicate to the position, in this case $1,000.
Financial leverage certainly makes it possible to maximize profits, but with them also losses. When the market goes against the trader’s predictions, the risk of losing a large part of the capital is very high.
In the event that the open position does not give the desired results in addition to losing the initial investment, the amount granted by the broker to open the position through financial leverage must necessarily be covered. Traders must therefore be able to manage financial leverage and must be familiar with the risks it entails.
To avoid losing large capitals, we advise you to always follow money management advice and never risk more than 2% of your capital for any single position.
Let us remind you again that leverage, as it can be an excellent tool to maximize profits, if used in a risky way can also lead to large losses.
In the Money.it section dedicated to financial leverage, you will find the best strategies to use and all the details to know exactly what is financial leverage and how it works.
