Using stop-losses is a popular way to reduce the risk of leverage. Attaching a stop-loss to your position can restrict your losses if a price moves against you. However, markets move quickly and certain conditions may result in your stop not being what is leverage in forex triggered at the price you’ve set. One lot of GBP/USD is equivalent to $100,000, so buying the underlying currency unleveraged would require a $128,600 outlay . If GBP/USD goes up by 20 pips to 1.2880, your position is now worth $128,800.

But what exactly is leverage in forex and how can you use it safely? We’ll cover some of the things you need to know to use leverage in forex. We’ll show you how to get leverage for currency trading, how to use it safely and how to maximize your profits. From a technical standpoint, trading with leverage is the same as trading without it. Leverage simply allows you to place larger orders, but the process of planning trades, placing orders, and managing positions are the same, no matter your leverage ratio. A margin call occurs when your margin level has dropped below a pre-determined value, where you are at risk of your positions being liquidated. ​Margin calls should be avoided as they will lock in any of the trader’s losses, hence the margin level needs to be continuously monitored.

Leverage example in the forex market

At Charles Schwab Futures and Forex, only U.S. dollars can be physically held in the forex account. Margin, also known as leverage, can boost an investor’s buying power and flexibility, potentially amplifying gains in a forex position with only a relatively small amount of money down. “How much are you willing to risk, and how much leverage do you want to use? Whether you use margin, and to what extent, “it’s a matter of your overall risk tolerance,” he explained. Leverage is a facility that enables you to get a much larger exposure to the market you’re trading than the amount you deposited to open the trade. Leveraged products, such as forex trading, magnify your potential profit but also increase your potential loss. In forex trading, leverage is the ability to enter a position that’s more valuable than the amount of money you have in your brokerage account.

However, if the euro weakens instead, losses will pile up quickly. If the EUR/USD slips to $1.09 (a drop of 100 pips, or a bit under 1%), the total position value would drop by about $1,000, https://www.bigshotrading.info/ down to $109,000. A forex currency pair quote tells you the cost to convert one currency into the other. For example, in mid-March, it took about $1.10 U.S. dollars to buy one euro.

Leverage and Margin

The stop loss closes your deal if it goes beyond this rate to ensure you do not continue to accrue losses. Leverage is nothing more than employing debt to buy a security or implement an investment strategy. That said, the investment for which a trader uses the trading platform’s leverage must comply with Shariah. Overall, trading with leverage is perfectly acceptable in Islam. If, however, the trader has losses and his Equity drops below 10% of used margin on MetaTrader 4 and AvaOptions accounts, the broker will shut down the client’s positions. In order to employ leverage, a trader needs to have sufficient funds in his account to cover possible losses. Each broker has different requirements, and AvaTrade requires a Pro/Non – EU Trader to possess Equity of at least 10% of his Used Margin for MetaTrader 4 and AvaOptions accounts.