Forex Trading Leverage

Forex trading leverage is one of the key features that attracts people to trading in the first place.  The benefit of trading on leverage is also one of the things that makes the pastime such high risk.

What is Leverage?

When you trade with a financial derivatives company, you will typically be allowed to do so by holding enough cash in your account to cover the margin required with your open trades.  For example if you were trading EUR/USD with a CFD and the contract was worth $100,000, the broker might only require you to have $1000 (1%) of this in your account.

The great thing about leverage is that you can make significantly larger sums of money but this is also a bad thing if you aren’t careful with your trades and the market moves against your position.  It is therefore imperative that risk management tools such as the stop loss are implemented into every trade.