As a trader, it is mandatory for you to understand the importance of forex leverage. In trading, it is known as the use of leverage.

The concept of leverage is indeed very profitable in forex and futures trading (commodities, cfd) but can also be dangerous if you are not careful in using it, especially if you use very high leverage (over leverage).

The advantage of trading forex and futures is that there is the facility of using margin and is the most popular feature for retail traders. Every retail broker offers trading on a certain margin, including the Didimax forex broker.

Trading on margin allows us to deposit small funds in our trading accounts and control much larger funds to be used for trading in real markets.

Example of the Importance of Forex Leverage

In simple terms, trading on margin is the term used for trading by borrowing capital from a brokerage or brokerage firm. For example, the following illustration of margin trading:

For the example of importance of forex leverage, A wants to trade cars, of course to make a profit. His first step would be to buy a car and sell it when the price goes up.

But A is having trouble. The car he wants to buy costs USD 10,000, while A only has a capital of USD 1,000, so he needs additional capital.

He believes that if he could buy the car for USD 10,000 he would be able to sell it for USD 12,000 for a net profit of USD 2,000.

But no one wants to lend money to A, and no car sales shop wants to lend his car either. Many people have experienced problems like A and failed to achieve their goals in trading.

But with margin trading A can trade cars without additional capital. He can buy the car with the limited capital he has, and he can make a profit of USD 2,000 for himself. Margin-based trading makes all of that possible.

With a margin trading system you do not have to pay the entire price of the goods you want to buy, but only pay a certain amount as a deposit.

And when you sell it you can take all the profit, or suffer a loss. A can buy a car for USD 10,000 with only a deposit of USD 1,000 on a margin trading basis.

When he manages to sell it for USD 12,000, he can take the profit of USD 2,000 and return USD 9,000 to the brokerage company that sold the car with an A deposit of USD 1,000.

Realistic Leverage Usage

Even though there is the importance of forex leverage, but high leverage will cause the minimum margin or minimum guarantee that you pay each time a transaction decreases. This will psychologically affect your trading.

One of the characteristics of successful traders are those who can eliminate the influence of emotions when trading.

When people talk about the advantages of futures trading, the first thing they usually come up with is the high, or even very high, leverage facility.

With a certain leverage, you can open tens or even hundreds of positions with relatively small capital. This can be done with only a relatively small margin guarantee, and this is what makes futures trading one of the charms.

Currently, many of the best forex broker offer leverage of 1:100, 1:200, 1:400 and even 1:1000. Suppose you trade with a broker that provides 1:100 leverage, then for every USD 100 you can make a transaction of (100 x USD 100) = USD 10,000.

So you don't have to pay USD 10,000 for a contract value of USD 10,000, but only pay USD 100. This will be very profitable, because you will benefit from every pip value movement (pip value) of the contract value.

Once you understand leverage, you can start learning a trading strategy that suits your style. Pay attention to the importance of forex leverage so that you can adjust the value of your deposit.