When we start to investigate the world of forex trading and various trading platforms, there is one word that pops up time and time again.
Many of us have heard of this concept but not a lot of potential traders know what it is exactly.
So, what is leverage?
The Cambridge dictionary has multiple definitions when describing leverage. Some are as follows:
- The act of using borrowed money to buy an investment or a company
- To use money to get more money
In the sense of forex trading, we are more interested in the latter point. A straightforward way to think of leverage in forex is “Using money to increase earning potential.”
Leverage is borrowed capital provided by a forex broker or financial institution to increase earning power.
It is essentially borrowed money to get involved in higher-value trades on financial instruments which would normally outprice an average trader.
For the purpose of this article, we will focus on leverage concerning forex trading.
So, what is forex?
Forex trading has pretty much been around since the birth of currency and overseas travel and offshore goods being traded. Anyone who has been on holiday abroad will understand that to purchase goods and services in that country, you must use the currency of that country.
This gave birth to small pop up currency exchanges, mainly around railway stations and other travel terminals, waiting to greet travelers and overseas traders.
These pop-ups would be the only authorized place to exchange your native cash for the money traders required for that country whilst charging a commission.
In today’s world, technology has helped us break down those rigid barriers of limited outlets where one can exchange money.
There are many prepaid cards that we can use when traveling abroad which also help eliminate fraud or theft.
Simply topping up a card which is not attached to your bank accounts can allow for peace of mind whilst traveling abroad.
Nowadays when we think of foreign exchange, we do not necessarily think of outdated currency exchanges, we think of forex trading.
Many of us look for an angle to generate an additional income and thousands of people globally do this by trying to predict the performance of one currency against another – forex trading.
Trading with Leverage
Forex and leverage go hand in hand in today’s online brokerages. Traditionally trading was reserved for society’s elite – wealthy people, Aristocrats, Bankers, and Big Business owners who could afford to come up with large amounts of capital.
What we mean by this is that a traditional investment of $50,000 – to trade on that particular asset, there would be no leverage available.
The full $50,000 would have to be invested. This is unrealistic to most. This would be classed as 1:1 leverage or no leverage.
I.e. $50,000 for a $50,000 investment. A significant amount to most but not to the elite.
Leverage allows the “average trader” to get involved in potentially high-profit trades without having to invest vast swathes of capital.
Now you can find brokers online which offer high leveraged trading on your preferred currency pairs.
Whether you follow global news, have a particular interest in market trends or can see an event that can potentially reshape a countries GDP, then you may wish to consider capitalizing on this by trading for or against the strength of a country’s currency.
New ECN STP Broker, EagleFX, offers high leveraged trading backing into the award-winning MT4 platform.
Sign up is completely free and users can take advantage of generous leverage of up to 1:500 for forex pairs, offering over 55 currency pairs to trade. These range from the major FX pairs such as AUD/USD, EUR/USD and GBP/USD.
If you have a greater interest and knowledge in some of the more obscure currencies around the globe, check out currencies such as The Isreali Shekel (ILS), South African Rand (ZAR), Mexican Peso (MXN) and much, much more – all tradable with 1:500 leverage!
Let’s take a major currency pair to use as a case study: GBP/USD
Without leverage, opening a trade with a contract size of 100,000 per lot would require a trader to put up around $130,000
Using leverage of 1:500, we can dramatically reduce the amount of capital required.
$130,000 / 500 (leverage used) = $260.00 required capital
Using this leverage size, we can use a simple formula to work out the amount of investment needed:
Buy trade: Ask price x contract size / leverage
Sell trade: Bid price x contract size / leverage
1 lot = 100,000 contracts (contracts worth is based on the underlying instrument which in this case is GBP)
GBP/USD, 100 000 Contracts are worth 100 000 units of GBP.
Demo, Assets and Leverage
It is advised that before trading with high leverage to investigate further and develop a trading strategy. Where can you do this you might ask?
There are many brokers in the marketplace that offers a free to use demo account for traders to perfect a strategy, get used to the available instruments and become accustomed to the MT4 trading platform.
The conditions of the EagleFX demo account are identical to that of the real account. This means you can test out an angle or strategy before depositing into a live account. Users can experiment with a range of leverages for different assets on the demo as well as live accounts.
The maximum leverage available at per asset on demo and live accounts as follows:
Forex – 1:500
Metals – 1:500
Indices – 1:200
Energy – 1:200
Crypto – 1:100
When choosing a forex broker there are certain product features to consider to ensure you get the most out of your investment.
Leverage should be pretty high up on the list of priorities here. 1:500 leverage for forex pairs is higher than the industry average, giving traders even greater earning potential with decreased exposure.
Often when searching for a broker that offers high leverage, there come certain set parameters in the shape of tiered accounts.
Trade 20 lots per month to gain access to high leverage up to 1:400
Deposit $500 per month to gain 1:500 leverage
When looking for a broker you should also keep an eye on any sign-up fees or ongoing costs which the broker may apply to keep your account active. Then balance this against the leverage available to make an informed decision.
It is also worth considering additional learning materials a site may or may not offer to help you grow as a trader and develop a winning formula on the path to success.
Many brokers also offer affiliate schemes where you can further boost your earning power by advertising online through your social media platforms or email address book.
If you know of friends, family members and acquaintances who are interested in high leveraged trading, you could potentially provide a gateway to increase your friends earning power whilst earning a commission from their trades placed.
In conclusion to this piece, we can safely say that high leverage truly grants ‘average’ users access to trading where traditionally they would not.
In today’s modern trading world, thanks to high leveraged trading, more people than ever can speculate on markets with relatively low capital with the potential for high returns.
Whether these returns be for professional, financial gain as a second income or just for a hobby, the accessibility is there.
EagleFX offers an account which is free to access with the finest trading conditions, institutional grade liquidity and high leverage up to 1:500 – allowing users the freedom and flexibility to trade over 55 currency pairs.
The broker is flexible in that it caters to beginners and professionals alike. Minimum deposits start from just $10 and beginners can take advantage of their demo account facility to perfect their own trading style.
This coupled with the educational features within the site allows users a space where they can learn as they trade thanks to daily analysis features and economic calendars.
Further, increase your earning potential and refer your friends to start earning commission today.
When searching for the right broker for you, consider high leveraged trading with fast execution speeds and an array of tradable assets for you to rule the markets.