Simply put, leverage is a means of amplifying your trading results by allowing you to control a larger position than your cash balance would permit. It uses borrowed funds, which increases both potential profits and potential losses.
For example, with a leverage of 1:30, a 1% market movement can result in a 30% profit or loss on your initial investment.
Here’s how it works:
- Leverage Ratio: 1:30 (requires a 3.33% margin for retail traders)
- Forex Contract Size: 1 lot = 100,000 EUR
- Required Margin: With a leverage of 1:30, you need 3.33% of the contract size to open a trade.
Example: 3.33% x 100,000 EUR = 3,333 EUR
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