Apalancamiento forex

Leverage in Forex is one of the basic terms you should know if you want to participate in this large financial market.

In principle, this market was designed so that only large entities financieraspudieran operate on it and, in fact, still today that move the market.

This is because a few years ago a large amount of capital needed to operate in forex, which is currently due to retailers or retail brokers has changed.

Currently, small investors can also invest in the Forex market, and this is where the importance of leverage for traders who invest with little capital goes.

Basically, leverage is much like a credit (without interest) or loan and then we will explain in more detail what this concept and how it works.

That is leverage in forex ??

Leverage is the ability to use a certain amount of capital that we have, that is, it provides us the broker, to open larger positions that would be within our reach if only we used our own funds.

Normally leverage comes at a ratio of:

X (amount of capital provided by the broker): 1 (amount of equity)

In addition to the examples that you can see in the picture above, we can see the following: if a broker offers a leverage of 25: 1, this means that for every euro we invest our capital we operate with 25 euros (24 euros we pay the broker + 1 euro added). To help you understand this better, with a leverage of 25: 1, if we deposit 5,000 euros, we can operate with a level of capital of up to 125,000 euros.

With leverage traders with limited funds, you can open operations with more capital, thus having the ability to increase profits or, unfortunately, to also increase your losses, because if we assume high leverage also are increasing our level of risk.

Dangers and risks of high leverage

As mentioned earlier, the capital that the broker lends us to open leveraged operations will be directly related to the amount of money you have deposited into our account when you place a new order in the market.

It should also be noted that the broker will use the funds deposited in the account as collateral, to avoid that we get to have a debit with him because of a set of operations that generate losses.

That way the broker can cover losses that may come to have, not allowing us to consolidate higher capital losses have placed as collateral.

If that time comes and we exceeded that margin with our current operations, you will find what is known as Margin Call (margin call).

If this occurs, we can not continue to perform more operations plus the broker itself will absolutely close all operations and orders we have placed on the market at the time, until there we enter more capital in our account in order to continue making operations and thus the broker also tried to reduce their exposure and therefore your risk.