Forex Leverage: A Double-Edged Sword
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One of the reasons why so many people are attracted to trading forex compared to other financial instruments is that with forex, you can usually get much higher leverage than you would with stocks. While many traders have heard of the word “leverage,” few know its definition, how leverage works and how it can directly impact their bottom line.
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The concept of using other people’s money to enter a transaction can also be applied to the forex markets.
KEY TAKEAWAYS
1. Leverage is the use of borrowed funds to increase one’s trading position beyond what would be available from their cash balance alone.
2. Brokerage accounts allow the use of leverage through margin trading, where the broker provides the borrowed funds.
3. Forex traders often use leverage to profit from relatively small price changes in currency pairs.
4. Leverage, however, can amplify both profits as well as losses.
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