Leveraged financing is a very common practice in Forex trading, and this allows traders to use credit, such as a trade purchased on margin, to maximize returns but this also increases the potential risks. known as margin, to take on a position that is larger in value. Currency pairs are usually traded in 100,000 unit standard lots or 10,000 unit mini lots. This means that the trader buys 100,000 of the base currency, while selling the equivalent number of units of the counter currency as dictated by the current exchange rate. Collateral for the loan/leverage in the margined account is provided by the initial deposit. This can create the opportunity to control USD 100,000 for as little as USD 1,000. Leverage can amplify the potential gain from an investment by initiating a relatively small amount of money for the right to potentially capitalize on a much larger amount of capital or product.
For instance you are sure that the Euro will go up against the US$ and you want to buy 300,000 euros but you can't afford it. But the brokerage firms let you take this risk and lend you 100,000. All they need from you is 1000 euros as collateral deposit subject to the obligation of paying current interest rates.
For instance you are sure that the Euro will go up against the US$ and you want to buy 300,000 euros but you can't afford it. But the brokerage firms let you take this risk and lend you 100,000. All they need from you is 1000 euros as collateral deposit subject to the obligation of paying current interest rates.
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