Leverage allows traders to increase their market exposure with a smaller initial investment. Through margin trading, you only need to deposit a fraction of the total value of a position this fraction is known as the initial margin. Rather than paying the full amount upfront, traders can open larger positions with significantly less capital.
Leverage ratios and margin requirements vary depending on the broker and the trade size. The ratio determines how much exposure you gain relative to your margin.
For example:
A 1% margin requirement is equal to 100:1 leverage
A 10% margin requirement is equal to 10:1 leverage
Understanding these ratios is key to effectively managing risk while maximizing your trading potential.
The initial margin also referred to as a “deposit” in some cases is the amount of capital needed to open a leveraged position. The required margin can vary based on the asset class, trading instrument, and size of the trade.
NOTE: Before engaging in leveraged trading with FX1 TRADE, it’s essential to fully understand how margin and leverage function. Practicing on a demo account is highly recommended to familiarize yourself with these concepts in a risk-free environment.
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