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First , we provide paid placements to advertisers to present their offers. This site does not include all companies or products available within the market. Leverage is the ability to use something small to control something big. Specific to foreign exchange forex or FX trading, it means that you can have a small amount of capital in your account, controlling a larger amount in the market.
The advantage of using leverage is that you can use more money than you have to increase your returns. The disadvantage is that you can lose more money than you invest when trading with leverage. It all depends on how you use the leverage and how you manage your risk.
Leverage makes a rather boring market incredibly exciting, but when your money is on the line, exciting is not always good, and that is what leverage has brought to FX. Typical amounts of leverage tend to be too high, and it is important for you to know that much of the volatility you experience when trading is due more to the leverage on your trade than the move in the underlying asset. If you're learning how to trade, there are several courses you can take that can teach you how to trade safely.
Leverage is usually given in a fixed amount that can vary with different brokers. Each broker gives out leverage based on their rules and regulations. Some typical leverage ratios are , , , and Professional traders usually trade with very low leverage. Keeping your leverage lower protects your capital when you make losing trades and keeps your returns consistent.
Many professionals will use leverage amounts like or It's possible to trade with that type of leverage, regardless of what the broker offers you. You have to deposit more money and make fewer trades. No matter what's your style, remember that just because the leverage is there, that does not mean you have to use it.
In general, the less leverage you use, the better. It takes experience to really know when to use leverage and when not to. Staying cautious will keep you in the game for the long run. You are required to pay back any leverage you use while trading. Leverage is debt just like any other type of loan, but unlike other types of debt, you may have some flexibility as to when you settle your balance.
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