Trading with a leverage

Trading with leverage, also known as margin trading, is a strategy that allows to make transactions in the cases when the price highly exceeds trader`s total funds. Thus the trader invests only a small percentage of funds in a deal. The exact percentage depends on many factors like a broker, platform and asset. Nowadays the margin trading is very popular. A leverage usually means the ratio of trader`s personal funds to the total amount, while a margin is the same ratio expressed as a percentage.

Advantages of trading with a leverage

The popularity of a leveraged trading is due to its countless benefits:

  • Invested capital minimization. You are to make not the whole but a small part of payment. For example, when opening a deal for 3000$ with a leverage of 1:400 you have to invest only 7.5$ of your funds.
  • Availability of instruments. While trading some instruments is available with a small-scale seed capital, the investment in more prestigious assets costs much more money. It becomes more affordable with leverage help. There is no need now to enter the market of these assets, it`s enough to profit from exchange rate movements, obtaining a leverage.
  • A great responsibility of risks. With the help of margin trading you can enter the market, having a small-scale capital. But there is also a great risk. The more you earn, the more you lose if the deal turns out to be unsuccessful. Trading with a leverage is a good training for traders, that always reminds them about a big risk. That`s why it is a faster way to learn working with stop losses without a huge waste.

Example of trading with a leverage

Imagine that the current price for a troy ounce of gold is 1327$. Let`s assume, we`ve made a forecast of highest costs for gold and opened a big deal of 10 items. Thus, the total deal amount will be 13 270$. It is too dangerous to risk the sum, moreover, a few traders have got this money. WANT. TRADE provides a leverage 1:100 (1% margin) for these positions. It means that you have to invest only 1$ for 400$ of this deal and, using the leverage, the total transaction value will be only 132,70$.

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