Leverage allows traders to use borrowed capital from the brokerage, to increase the size of the position you wish to trade. This effectively boosts your exposure in the markets, allowing for greater profits when trades finish in the money. With online trading activity, the broker assigns an amount of the trader’s capital as equity, known as the margin requirement, for trading activity. As an example, 0.5% margin indicates that a trader can trade a position 200 X the size of the available capital (100/0.5).
Therefore, leverage significantly increases the size of positions you can hold with trades. The caveat is that trades can go either way. In your favour or out of your favour. Leverage can multiply losses to the downside as well. The margin requirement will vary from one asset class to the next. It also depends upon your trader level, which represents the type of account you have. Retail traders are offered considerably less leverage than professional traders. This is done to protect inexperienced traders from exposure to risk.
- Certain currency pairs and commodities may be unavailable in specific regions.
- While atypical, spreads can vary during volatile trading sessions, and during non-trading hours. If you decide to trade under these conditions, you will be presented with the relevant spreads.