What are leveraged products?
Leveraged products in forex, also known as margin trading, allow traders to control larger positions in the market with a smaller amount of capital. It involves borrowing money from a broker to amplify potential returns. For example, with a leverage ratio of 1:100, a trader can control a position of $100,000 with just $1,000 in their trading account.
While leverage can magnify profits, it also increases the potential for losses, as traders are exposed to the full value of the position. Therefore, it is important to understand the risks involved and use leverage responsibly.
Example of leveraged products
One example of leveraged products in forex trading are ‘Contracts for Difference‘ (CFDs). CFDs allow traders to speculate on the price movements of various financial assets, including forex pairs, without actually owning the underlying asset.
With CFDs, traders can leverage their positions by only depositing a fraction of the total trade value, known as margin. This allows traders to amplify their potential profits but also increases the risk of losses. It’s important to note that leveraged products like CFDs can result in substantial gains or losses, so proper risk management is essential.