Leverage

CFD trading often uses leverage to increase the power of the asset.

Leverage can give traders a lot of flexibility in trading assets, as the market for each asset is enormous. For example, the currency market has a lot size of 100,000 units.

Using leverage allows traders to trade larger lots with a smaller amount of capital, and can also allow traders to open more positions without having to invest all of the money in one large trade.

Now, let's get a deeper understanding of leverage.

 

What is Leverage?

You may understand that leverage is a tool that increases the power of trading assets. You can buy an asset with a lot size of 100,000 from the original price of 10,000 to only 10,000 or 1,000.

 

But how can this asset's trading power be increased?

The answer is, it’s the money that a broker lends to a trader to trade a position that is larger than the trader’s own capital.

Using leverage means that even with a small initial deposit, a trader can control a much larger trading position in the market.

Therefore, using higher leverage allows you to place orders with a larger lot size.

 

IUX Trade offers you leverage up to 1:3,000.

 

For example:

You want to place an order to trade a currency such as EURUSD, where 1 lot size is 100,000 EUR.

If you use leverage = 1:1

When you place an order of 1.00 Lot Size

The Margin you need is 100,000 EUR

In short, you will need to deposit the full amount

 

But if you use Leverage = 1:100

You place an order of 1.00 Lot Size

The Margin required is 1000 EUR

In short, you only need to deposit 1% of the margin.

 

The ratio of leverage.

Leverage is based on the Debt to Equity ratio.

A ratio that tells how many times a company has debt to its shareholders' equity, which reflects the company's financial position.

But in this case, Leverage is the ratio of "Collateral to be Deposited: Asset Value Ratio".

 

For example:

1:500 means that you can put up only 1 USD in margin to hold a position of 500 USD.

So, if you have 1,000 USD in capital, you can trade the maximum contract size of 1,000 x 500 = 500,000 USD.

 

The Main Advantages of Using Leverage 

As you can see, the main advantages of using leverage are:

 

1. Trade larger volumes: When using leverage, you can place larger trades than when trading assets without leverage.

2. Increased profit potential: When you are successful in trading, you have a higher chance of making profits.

 

Disadvantages

But using leverage also has disadvantages:

High risk: Using leverage is very risky because it involves borrowing money from the broker to use first. If you are not successful in trading, you may lose more than expected.

 

All investments have risks, but the amount depends on the type and method of investment. The higher the risk, the higher the return. But if you can accept less risk, the return will be less.

Therefore, you should invest only the amount of risk you can accept.