How to Use Leverage in Forex Trading

Trading in the Forex market is done in standard units. One standard unit is equal to $100,000. This is not within the budget of the average trader. It is to overcome this problem that the concept of leverage was introduced. Now, with leverage even investors with a few hundred or thousands of dollars are able to enter the Forex market. This is with the leverage offered by Forex brokers.
Another reason why leverage is needed in the trade of currency is due to the fact that currency prices move in very small points and is insignificant at best. When you apply leverage this shows enough movement so that profits can be calculated accordingly. There is also a downside to this. That is, the losses while operating with leverage is also augmented in the same way and the trader stands to loose substantially.
Leverage actually works as a loan that the trader has taken from the Forex broker. Indeed, interest is calculated accordingly and thereafter is set off against the interest earned through the profits that the trader collects by trading currency with leverage. How much leverage can you get? This is totally dependant upon the margin deposit that the trader makes and then the Forex broker will decide on the leverage to be given. For example, if a trader who has a margin deposit of $1000 is offered leverage amounting to 200:1 he will be able to trade with $200,000 or if you take it in units the trader will be able to trade with two units of $100,000 each. Forex brokers offer the average trader the chance to operate even with a few hundred dollars as a margin deposit. The margin deposit is actually considered as collateral for the loan which is what leverage is. If a trader is low on funds in his margin deposit then the Forex broker will initiate a margin call which indicates to the trader the need to add to his deposit or to close the position.
A trader who knows how to maximize his profits with the help of leverage will certainly be able to build a wealth base easily. Therefore, time spent in learning how to earn from leverage is very important to all who trade real currency online.

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