Education

How Leverage Really Works | Margin Trading Explained

Leveraged trading allows even small retail traders to make money trading different financial markets.

With a borrowed capital from your broker, you can empower your trading positions.
The broker gives you a multiplier x10, x50, x100 (or other) referring to the number of times your trading positions are enhanced.

Brokers offer leverage at a cost based on the amount of borrowed funds you’re using and they charge you per each day that you maintain a leveraged position open.

For example, let's take EURUSD pair.

Let's buy Euro against the Dollar with the hope that the exchange rate will rise.
Buying that on spot with 1.195 ask price and selling that on 1.23 price we can make a profit by selling the same amount of EURUSD back to the broker.

With x50 leverage, our return will be 50 times scaled.

With the leverage, we can benefit even on small price fluctuations not having a huge margin.

❗️Remember that leverage will also multiply the potential downside risk in case if the trade does not play out.
In case of a bearish continuation on EURUSD , the leveraged loss will be paid from our margin to the broker.
For that reason, it is so important to set a stop loss and calculate the risks before the trading position is opened.

Let me know, traders, what do you want to learn in the next educational post?

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