1. What is Leverage in Trading?
Brokers tend to provide leverage to traders for outbidding purposes. The advantage that this poses is that if a trader needs to borrow money, they can use it to buy more than what is available in their capital. In easier terms, this would mean they would stand with more power to control larger positions than what could be virtually possible with just their actual money.
Example:
- Trading without Leverage: If you have 1000 USD and you trade on Gold than you will only be able to trade only upto 1000 USD on your account.
- Trading with Leverage: With 500x leverage, the same amount of 1000 USD will let you take trades worth of 5,00,000 USD on your account.
If the market is moving on your favour than you will generate much more profits if you trade with extra leverage on your account and if the market is not in your favour than the loss ratio is very less as with leverage your investments are minimized.
2. How Does Leverage Work?
Leverage, for example 10x, 50x, 100x, 500x, is a ratio indicating how many times your initial investment will be multiplied into the trade.
Typical Leverage Ratios and Exactly How to Interpret Them:
- Get 10x Leverage: Your funds are 10 times the amount. A 10,000 USD investment allows you to trade 1,00,000 USD.
- Get 50x Leverage: Your funds are 50 times the amount. A 10,000 USD investment allows you to trade 5,00,000 USD.
- Get 100x Leverage: Your funds are 100 times the amount. A 10,000 USD investment allows you to trade 10,00,000 USD.
- Get 500x Leverage: Your funds are 500 times the amount. A 10,000 USD investment allows you to trade 50,00,000 USD.
The more the leverage that you are getting the more you can earn profits using the leverage with minimum investments.
3. Using Leverage Safely to Trade
Risk Management is very important while trading with leverage, you can use the following methods to mitigate your risks:
- Using Stop Loss Orders: By using stop loss orders on your positions the trade is automatically closed if the market moves to much against your position which helps you to prevent large losses.
- Managing Position Size: Always keep enough free margin in your account and never use all of your margin to help you control the position when the market is not in your favour. With this the position always has chance to bounce back to your favour.
In summary, Leverage is a very useful tool for trading when used with correct trading strategies. By trading with proper risk management methods and good strategies, you will be able to maximize your profit.
Start trading with ExGO today and you can trade in leverage upto 500x in global markets.