What Is Leverage in Forex Trading?
Forex trading leverage can be an effective tool to help traders increase the returns from their investments. However, it should also be remembered that it may increase potential losses; hence it should only be employed with extreme caution. Leverage in forex trading refers to the amount of money a trader can borrow from their broker in order to invest in the market, usually up to 1:500 depending on broker and country. Forex leverage differs significantly from margin trading in stocks which allows traders to purchase shares with only minimal initial investments; most forex brokers provide some form of leverage that increases a trader’s buying power significantly. Traders can select their level of leverage depending on their risk tolerance and the amount they can afford to lose. No matter their choice of leverage level, however, all traders must implement proper risk management and use stop loss orders so as to safeguard…