How do I use leverage in Forex Trading?

 

When you trade Forex CFDs, you trade a leveraged derivative product. Leverage allows traders to increase their exposure to currencies and potentially magnify their profits with a relatively small initial deposit. ForexCT offers its clients up to 400:1 leverage. What does this mean? It means that you can increase your exposure to 400 times the margin required for the trade. Let’s look at an example.

How do I use leverage

Step 1You decide to open an AUD/USD trade.

Step 2Since you believe the Aussie is going up, the direction of your trade is BUY AUD, SELL USD.

Step 3The price is 1.0500.

Step 4The contract value is AU$10,000.

Now that you have the trade specifications worked out, you want to know the margin amount you need to open the trade. Think of the margin as a form of collateral, where the amount of collateral needed is determined by your leverage. Let’s assume that you have 400:1 (or 0.25%) leverage on your trading account.

The required margin for this trade would be calculated as follows: Contract value x (Leverage %/100)

10,000 x (0.25/100) = $25

In other words, a deposit of $25 in your account is required in order to open a $10,000 AUD/USD trade and have full exposure to that $10,000 position. The key point is that with leverage, you do not need $10,000 margin in your trading account to open this trade – you only need $25.

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