What is Forex Leverage?
Leverage simply means the % amount of money you are allowed to borrow from the broker when you open a position. Typically in Stock market when you buy 100 shares of a company trading at $10 per share, you are required $1000 to open the trade. Some stock brokers would let you borrow money from them, most cases it is 50-80% of the total stock value. So instead of $1000 you are now only required to have $500. This helps traders to buy more shares with same amount of money. However stock broker would charge you interest on the money borrowed. Forex Leverage is similar expect on steroids.
A typical Forex Broker would let you borrow 99% of the total value required to open a trade and you only need to come up with the remaining 1%. So if you are about to trade $1000 then you only need to have $10. Big difference from normal stock trading. Also Forex broker won’t charge you interest on the borrowed amount.
The above table is only a guide, when trading live the Required Margin will change based on currency pair. In my personal opinion one should not go beyond 100:1 leverage. However your opinion may differ so feel to add comment with your preferred leverage and why.
You may also want to read about “Does higher Leverage in Forex Trading help?”
Hi, nice info on Forex Leverage. Many people dnt know about this concept.Thanks.
Thank you for providing wonderful information about forex leverage along with easy to understand chart.
When I kept asking myself “what is Forex?” the easiest way I found out the answer was through such a helpful and informative post as this one. And now with similar easiness I learn about Forex leverage. Thanks so much!