Maximum Leverage

What Is Leverage?
In investment terms, leverage is a strategy used by a trader, in which they use borrowed money to increase the potential return on an investment. Leverage can be used in various forms of investing including options, futures, and margin accounts.

For example, with the trading of stocks, an investor might decide to use their trading capital to invest in options contracts rather than buy the shares of a company. This way, the investor has more control over a larger number of shares, resulting in a much larger potential profit.

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Another example is leverage in the forex market. Investors use leverage in this market to take advantage of price fluctuations of exchange rates. The way this works is; a forex broker gives the investor a loan when they open a margin account with them. The amount of leverage provided varies from broker to broker, but is usually 50:1, 100:1, or 200:1. These ratios represent the amount of tradeable capital the investor must have in comparison with the loan amount. For example; 1/50= 2%, 1/100=1$, and 1/200=5%. The percentage is the amount of trading capital the investor must have compared to the loan amount. This amount of leverage may seem like a lot, but currency prices usually change less than 1% in a typical trading day.

Maximum Leverage Forex Brokers

forex brokers are known for having the highest amounts of leverage. Some accounts offer leverage of up to 3000:1. Accounts like this allow investors to open forex positions with very small amounts of margin funds and be can used by traders who are actively aggressive in their trading strategies by wanting to open multiple trades simultaneously.
However, many forex accounts will only allow small amounts of leverage like 1:25, 1:50, etc. This is due to their jurisdictional requirements, and are put in place to protect the investor. For high amounts of leverage and can act as a double-edged sword resulting in either significant losses or profits.

Is High Maximum Leverage Right For You?
A high maximum leverage is not for everyone due to the high level of risk it poses. However, it applies to some. For example, it applies to traders who need to open big positions with a small balance size, or for traders who need to open many small trades simultaneously. As well, it might be for someone who copies trades or follows a trading strategy that requires high amounts of leverage.

Advantages Of High Leverage

Probably the biggest advantage of high leverage is the ability to trade with a low amount of capital. There was once a time when only the wealthy could trade, however with the use of leverage, pretty much anybody can now have a crack at trading. Another advantage of high leverage is that the money borrowed from the broker is interest free and presents opportunity to profit from huge gains.

Risks of High Leverage
While leverage can be quite profitable, it can also be quite devastating during volatile market conditions. In forex trading, leverage comes from a small investment that is used for large trades of foreign currency. With these larger trades, traders are susceptible to a greater loss. In fact, the loss can even outweigh the amount of capital they put into the trade. Traders must always be cautious when trading with leverage, often times greater gains means greater risk.