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Leverage

It is powerful and very useful in Forex Trading. With 100:1 leverage you are effective using $1 to hold $100 dollars. With 500:1 leverage will enable you to hold $500 using $1. This is nothing new to finance industry but widely use for currency trading in order to use the dollar unit value of currency.

It works with capital that funded the trade. The capital has to be in currency value or cash in order to attain the leverage holding. This is similar to derivative or contract for difference for stock and shares. Using cash to leverage is much more powerful than using physical assets as it is harder to dilute and cash it back. Therefore, leverage is still used by currency trade with capital at 100:1 leverage. This determined the 1 lot size of 100k contract in forex trading. (For mini lot is 0.1 lot of 100k contract).

wetalktrade-leverage

wetalktrade-leverage

1 lot actually holds 100k contract worth of currency. This is equivalent to $1k of capital used to hold $100k contract worth of currency. Since...


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