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Understanding Forex Leverage & Margin

What is Forex Leverage?

Leverage in forex trading allows traders to control large positions with a small portion of their own capital. It acts as a loan from the broker, increasing market exposure and amplifying both potential profits and losses. While it enhances gains, it also raises the risk of larger losses.


  • Example: With 1:50 leverage, for every $1 invested, you control $50 in the market. So with a $1,000 deposit, you can control a $50,000 position.

Key Benefits:

  • Increased Market Exposure: Leverage allows traders to enter larger trades without needing significant capital.
  • Potential for Higher Returns: It magnifies profits from small price movements

Key Risks:

  • Increased Risk: Leverage amplifies potential losses, making even small market moves dangerous.
  • Margin Call: If the market moves against you, you may lose your entire deposit (or more) if leverage is not properly managed.

What is Margin?
Margin is the amount of money a trader must deposit with the broker to open and maintain a leveraged position. It acts as collateral to cover potential losses.


  • Example: If the margin requirement is 2%, to open a $100,000 position, you need to deposit $2,000 as margin.


Key Concepts:

  • Initial Margin: The amount needed to open a new position.

  • Maintenance Margin: The minimum equity required to keep a position open. Falling below this level may trigger a margin call.

  • Low Margin Requirement: A 1% margin means you only need to deposit 1% of the trade's value.

  • High Margin Requirement: A 10% margin means you need more funds to open the same position.

What is a Margin Call?
A margin call occurs when your account balance falls below the required margin due to losses. The broker will request additional funds to maintain your open positions.


How it Works:
If the market moves against your position and your account balance drops below the margin requirement, the broker may issue a margin call. You must either deposit more money or close positions to reduce exposure.


  • Example: Suppose you opened a $100,000 position with $1,000 margin (1%). If your account balance falls to $500, the broker may issue a margin call, asking for more funds to maintain the trade.


What Happens if You Don’t Meet a Margin Call?
If you don’t deposit the required funds, the broker has the right to close your positions to prevent further losses.

How to use leverage successfully on the forex market

  1. Understand the Leverage Ratio and its impact on trade size and risk.
  2. Use Stop-Loss Orders to protect your capital and limit potential losses.
  3. Keep Leverage Low, especially if you're a beginner or in volatile markets.
  4. Practice Proper Position Sizing to avoid overexposing your account.
  5. Monitor the Market Closely for sudden changes that could impact your leveraged positions.
  6. Use a Risk Management Plan to diversify your trades and control risk.
  7. Avoid Overtrading by sticking to a structured plan and limiting impulsive trades.
  8. Keep Margin Requirements in Mind to avoid margin calls and automatic position closures.
  9. Adjust Leverage based on market volatility for safer trading.
  10. Practice on a Demo Account to understand how leverage affects your trades before risking real money.

By carefully managing leverage, you can take advantage of larger trading positions while mitigating risk, ultimately achieving greater success in the forex market.

JION & JOY US!
MEXN POTAL PLATFORM

RISK DISCLOSURE: Contracts for Difference (“CFDs”) are leveraged products and carry a high level of risk to your capital as prices may move rapidly against you. Losses can exceed your deposits and you may be required to make further payments. These products may not be suitable for all clients therefore ensure you understand the risks and seek independent advice.


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Company address : RM 1506, 15/F GOLDEN GATE COMM BLDG, 136-138 AUSTIN RD, TST, KLN HONG KONG

Registration number : 2475730│Tel : +852 6653 2060│ Email : master@potal-platform.com

Copyright © 2020 "POTAL PLATFORM". All Right Reserved

MEXN POTAL PLATFORM 

RISK DISCLOSURE: Contracts for Difference (“CFDs”) are leveraged products and carry a high level of risk to your capital as prices may move rapidly against you. Losses can exceed your deposits and you may be required to make further payments. These products may not be suitable for all clients therefore ensure you understand the risks and seek independent advice. 

※ We do not provide services to residents of certain regions such as the United States, Canada, Israel and Iran.New Zealand, Australia, and North Korea, officially the Democratic People’s Republic of Korea or any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. 


Company address : RM 1506, 15/F GOLDEN GATE COMM BLDG, 136-138 AUSTIN RD, TST, KLN HONG KONG Registration number : 2475730│Tel : +852 6653 2060│ Email : support@mex-n.com Copyright © 2020 "MEXN POTAL PLATFORM". All Right Reserved