What is leverage?
Leverage is foreign exchange and CFD. One of the most important features. It is a powerful tool, Allow traders to gain greater risk exposure by opening positions, The opened warehouse quantity is significantly greater than the amount required for opening the warehouse. To open a position, Traders only need to deposit margin in their trading account.
This is called margin trading, It is being used MetaTrader 4 and MetaTrader 5. Concepts used when conducting financial market transactions on advanced trading platforms. It is very important to understand the working principle of leverage before starting trading. This will enable you to utilize risk management tools to maximize returns and limit potential losses.
Key terms of leverage?
To have a clear understanding of leverage, There are some key terms that you need to know. They are:
INITIAL MARGIN: The amount required to open a trading position.
bond: The total amount required to open and maintain trading positions. This includes the initial margin, Any brokerage fees, The overnight interest required to maintain overnight positions, And any potential margin calls.
Leverage ratio: Simply put, It is the amount of risk exposure you can obtain relative to the invested capital. It can be obtained from 2: 1 (Twice the initial deposit) Up to high leverage amounts 500: 1 (Initial deposit 500 times) .
Utilize the aforementioned leverage, It refers to using borrowed funds to enlarge the size of a trading position. Traders do not need to provide the total value of their trades in their account balance. opposite, They only need to deposit the initial margin to open a position, But according to the provided leverage, They will gain greater risk exposure.
for example, You can use 10: 1 Trading with leverage ratio. This means you will be able to open positions, Its scale is ten times the initial deposit. In your trading account, there are only 1, 000 dollar, You can open a total value of 10, 000 Position in US dollars.
The use of leverage is very common in the foreign exchange market, Its benefits can be demonstrated through a simple comparison with stock trading. In traditional stock market trading, You need to pay the total value of the stocks you want to purchase. Let's assume that you wish to pay per share 50 Purchase in US dollars 1000 strand Woolworths stock. You need 50, 000 The transaction can only be completed in US dollars.
in contrast, If you want to purchase a leverage ratio of 20: 1 The Stock Differential Contract, You only need the total value of your position 5%. In the scene above, You just need to 2, 500 The value can be obtained in US dollars 50, 000 The US dollar Woolworths stock. similarly, 50, 000 Investing in US dollars will give you 100 Risk exposure of ten thousand US dollars (20 Twice your initial investment) .
Different types of leverage products
FP Markets Provide in the world's largest market 10, 000 Multiple financial products
Leveraged trading. This enables traders to take advantage of market fluctuations, Even the smallest price fluctuations. The most popular leverage product is external
Huihe Contract for Difference (CFDs) .
foreign exchange
Leverage is Foreign exchange transactions. . One of the main factors contributing to the rapid increase. The foreign exchange market is the world's largest financial market, The daily transaction volume reaches trillions of dollars. Foreign exchange trading involves buying one currency and selling another currency simultaneously.
Contract for Difference (CFDs)
A contract for difference is a type of contract, You can exchange the price difference of the underlying asset without actually owning it. One of the main attractions of CFD trading is that they are a leveraged product.
other
In the financial services industry, There are many other leveraged products as well, Including futures, Options and Exchange Traded Funds (ETF) .
In which markets can you use leverage?
exist FP Markets, Our leveraged products include stocks, commodity, precious metal,
Forex and CFD in indices and cryptocurrencies.
The detailed introduction of markets where leverage can be used is as follows:
foreign exchange
foreign exchange The currency pairs in China are divided into three categories:
Major Currency Pairs
Using the US dollar as the base or quotation currency, It has the highest trading volume, Spread The lowest currency pair. for example EUR/USD and AUD/USD
Secondary currency pairs
Composed of major currencies, But not including US dollars. for example GBP/CAD and EUR/AUD.
Strange Currency Pair
Composed of a major currency and an emerging market currency. Higher volatility and lower liquidity typically mean larger spreads for exotic currency pairs. for example AUD/MXN and JPY/NOK.
Contract for Difference
FP Markets Provide leveraged contract for difference trading across multiple products, include:
Spanning across four continents 10, 000+Australian and international stock price difference contracts. Trading the world's largest company, Including apples, Facebook, Alphabet, Tesla and Wal Mart.
Enjoy the benefits of West Texas Intermediate crude oil (WTI) , Brent crude oil, Leveraged trading of major commodities such as natural gas. Due to a negative correlation with traditional asset classes, Commodities are often used as part of risk management trading strategies.
Spot prices for trading precious metals, Including gold, silver, Platinum and palladium.
exist FP Markets, You can trade CFD index futures from around the world, The margin is only for 1%. Trading on the world's largest exchange, Including the New York Stock Exchange, NASDAQ, London Stock Exchange and Australian Stock Exchange.
Buying and selling cryptocurrencies without the need for a digital wallet. Trading the most popular cryptocurrencies using cryptocurrency price difference contracts, Including Bitcoin, Ethereum, xrp (Ripple) , Bitcoin Cash and Litecoin.
Leveraged trading provides many advantages, But understanding the related risks is crucial.
This will help you maximize your profits, Simultaneously limit your risk exposure.
advantage
Enhance profit potential: By obtaining more funds than are available in your account, You can increase your potential profits through leverage. Due to the fact that the amount required for opening a warehouse is limited to the margin, The profit you gain from the transaction can be amplified.
No interest: Despite obtaining more funding, But there is no interest payment. Any normal circumstances related to the purchase of any other asset will have interest payable in relation to it. When using leverage for trading, FP Markets Provided additional amount required to initiate the transaction, Without charging any interest.
Low entry threshold: I have it FP Markets, You just need to 100 You can open a trading account in US dollars. According to the traded product, You can use leverage to open positions with a total value of thousands.
hedging: When hedging as part of a risk management strategy, Can effectively utilize leverage. It allows investors to hedge risks without having to spend a lot of capital.
Trading opportunities: A series of leverage products can be offered weekly 5 day, every day 24 Hourly trading. Combining the ability of two-way transactions (Open long and short positions) , This creates more trading opportunities.
disadvantage
Due to the ability to open larger positions, Traders should also be aware of the potential drawbacks associated with leveraged trading, Including but not limited to:
Expanded losses Although using leverage can increase your profit potential, But it may also amplify your losses. That's why developing a strategy that considers your risk appetite and provides management of market volatility Trading Plan Very important. Inexperienced traders can practice using Simulated account , Learn and test strategies for using virtual currencies.
margin calls It is possible that your loss exceeds the amount in your trading account. If your loss exceeds your account balance, You may receive a notice to add margin. Use risk management strategies, For example, using stop loss instructions, Can prevent this situation from happening.
transaction cost transaction cost: Based on your position (Long or Short) Size and type of, Maintaining these positions overnight may incur related expenses. Before executing any transaction, Overnight interest and other fees should be considered.
The above further emphasizes the use of risk management The necessity of technology and strategy.
In which markets are you available
Using leverage?
Leverage ratio refers to the risk exposure you can obtain in your initial investment. The amount of leverage provided will vary depending on many factors, Including the financial products traded, Position size and Account Type.
Leverage ratio What does it represent?
Leverage ratio represents the ratio of debt to equity/Proportion of capital amount. Capital is usually composed of numbers 1 show, Another is the debt ratio that traders can obtain. 20: 1 The leverage ratio means that traders can gain exposure equivalent to twenty times their capital. similarly, This can also be explained in the opposite way. The margin requirement is the total value of the transaction 1/20 perhaps 5%.
Leverage ratio type
In the financial services industry, The most common types of leverage ratios are:
leverage factor = total debt / total assets
Debt to equity ratio = total debt / Total equity
debt-to-equity ratio = total debt/ (total debt+Total equity)
Debt to EBITDA ratio = total debt / EBITDA
Asset to equity ratio = total assets / Total equity
leverage trading - frequently asked questions
To help demonstrate how leverage is calculated, Let's take a look at two traders, Trader A And traders B.
Trader A: (1, 000 dollar / 5: 1)
If a trader A The leverage ratio of the account is 5: 1, And I hope to use it in one transaction 1000 USD as margin, So its base currency (1000 dollar) The risk exposure is 5000 dollar.
5×1000 dollar = 5000 dollar (value in exchange) .
Trader B: (1, 000 dollar / 500: 1)
If a trader B The leverage ratio of the account is 500: 1, And I hope to use it in one transaction 1000 USD as margin, So its base currency (1000 dollar) The risk exposure is 500, 000 dollar.
500×1000 dollar = 500, 000 dollar (value in exchange) .
compare
Trader B Just use their trading account 1000 A small portion of the US dollar, You can open with traders A Positions of equal value. Due to traders B The margin requirement is only 0. 02% (500: 1) , They just need 10 The value can be opened in US dollars 5000 Position in US dollars.
5, 000 dollar x 0. 002 = 10 dollar
Leverage is often used for foreign exchange and CFD transaction. The leverage level will vary depending on many factors, Including the financial products traded , Account Type, Trader Experience, Position size and regulation. Higher leverage levels are typically applicable to products with higher liquidity levels, Such as major foreign exchange pairs and indices. About trading stocks CFD, Please check FP Markets Margin requirement.
When searching for the optimal leverage ratio, There are several factors to consider. Traders should be aware of their risk appetite, Adhere to a trading plan. Experienced traders feel more comfortable trading with higher leverage ratios, Inexperienced traders should consider starting with a lower leverage ratio. in addition, We should also consider the financial products currently being traded. Some markets, such as cryptocurrencies, are considered more volatile than a large number of traded products, including major currency pairs.
Regarding online transactions, 500: 1 The leverage ratio means that every 1 dollar, You can trade up to 500 Financial products denominated in US dollars. In some countries, The highest leverage ratio on retail accounts is 500: 1. The leverage ratio may vary depending on the asset class and financial product. Traders should always pay attention to the leverage ratio they are trading at, And adjust the strategy accordingly.
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