Leverage in forex refers to the practice of borrowing funds from a broker to amplify the potential returns and losses of a trade, allowing traders to control larger positions with smaller amounts of capital.

What does leverage in forex mean?

Leverage in forex refers to the ability to control a larger position in the market with a smaller amount of capital. It allows traders to magnify their potential profits, but it also increases the risk of losses. For example, with a leverage ratio of 1:100, a trader can control a position worth $10,000 with a capital of only $100.

Leverage is provided by brokers and is expressed as a ratio, such as 1:50, 1:100, or 1:500. Traders should be cautious when using leverage as it can lead to significant gains or losses depending on market movements.

Example of leverage in forex

If you have a leverage ratio of 1:100, it means that for every $1 in your trading account, you can control $100 in the forex market. This allows traders to potentially earn higher profits with a smaller initial investment.

However, it also magnifies both potential gains and losses, making leverage a double-edged sword that should be used with caution.

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