What is Forex Leverage?

Forex Leverage or 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 except on steroids.

Forex Leverage

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.

Leverage In Forex Market

Note that in case of stock trading you will liable to pay up $500 (or more) you borrowed in case of a loss. In Forex, your broker will close out all open trades as soon as your account available balance reaches zero.

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 in Forex trading. However your opinion may differ so feel to add comment with your preferred Forex leverage and why.

You may also want to read about “Does higher Leverage in Forex Trading help?”

Chris Farnworth is an independent Forex and Commodity trader with many years’ experience under his belt. He travels and works from around the world trading and writing content for various websites and blogs. In his spare time he enjoys scuba diving and surfing.

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11 Responses to “What is Forex Leverage?”

  1. Silvester 15 November 2008 at 9:43 pm #

    Hi, nice info on Forex Leverage. Many people dnt know about this concept.Thanks.

  2. Forex-trading-fan 3 December 2008 at 6:18 am #

    Thank you for providing wonderful information about forex leverage along with easy to understand chart.

  3. Money & Finance 23 June 2009 at 10:06 am #

    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!

  4. HeffCommentForex 23 March 2010 at 2:03 am #

    Your explanation of "leverage" is the shortest I've come across so far, but is also the clearest. Now I know what leverage is. The other websites I went to, including Investopedia, just confused me even more. Your table was key.


  5. Vital .K. 7 April 2010 at 3:41 am #

    Hi, thnaks for your guide on leverage I dicided to choose 100.1 as you suggested I think it is the best.

    • FirePips 3 November 2011 at 2:27 pm #

      100:1 is a good choice Vital.

  6. harsh 4 November 2011 at 7:03 pm #

    HI nice concept. Thanks a lot

  7. Rinaz 23 November 2011 at 7:49 pm #

    1:50 is the best leverage. because it gives enough room to breath and wait for a gain in cool to close..

  8. karthickk3 27 November 2011 at 3:19 am #

    That was a nice explanation. However I've couple of doubts which i believe you'll help me by clarifying it.

    1.What is the benefit of broker?
    2.Lets say I go by ratio of 100:1, where as am required to invest just USD1000 for USD100000. If total value of increases to 110000, will i get a profit of 10000usd or only 1% of it? i.e., 10usd?

    • Ajay 23 November 2012 at 2:07 am #

      any update on this doubt???

    • FirePips 23 November 2012 at 9:10 am #

      When you invest $1000 you will only see$1000 in your trading account and not 100k
      So if your account goes up by 1% then you will see $10 profit.

      Higher Leverage helps when you open many positions at a time. The less money you need to put out to open a position is better in that case.

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