In the forex market, you need a smaller deposit (or bait) for a larger contract value (or fish). How is that possible? It’s because of the leverage.Leverage is basically a loan that brokers give to traders, and they can have the ability to control a large amount of money using very little of their own money.In the forex market, the Leverage is more than fifty times higher than in the stock market*.
In stock trading, your maximum leverage is only 2 to1. But in the forex world it can go from 50 to 1, to even 200 to 1.
For example, if you want to have a 200 thousand position, you can put in only 1000 dollars of your own, and your broker will give you the ability to control the 2 hundred-thousand dollar account with your mere thousand dollars. That means, if you make 1% return in your 200 thousand dollar investment, that is going to be much more than a 1% return in a thousand dollar position, right?
I know that you are now all amazed and excited and probably on your way to open a forex account, but please, listen to me carefully when I say what I’m about to say:
Leverage is a Double Edged Sword. While you can get a significant return, leverage has the potential to bring you equally significant. losses. It enlarges losses and profits by the same magnitude. So be careful. Please.
