How to Use Leverage?

Leverage trading or margin trading is a key feature of CFD trading giving the trader a large exposure to the financial market, whilst investing only a small portion of their investment.

The Benefits of ‘Leverage’ Trading

Traders put up a sum of a fraction of the total value of their position, freeing up their capital, allowing traders to invest in a number of different assets instead of one or two. This means that traders can get the most out of their capital.

Examples of Leverage Trading

1. A broker may offer a leverage of 600.1

This allows a trader to invest $1 of his own capital for every $600, so if a position value at the time of opening is $5,500 he would only need to invest $9.16 to open it.

‘Leverage’ is the ratio between the position value and the investment needed

‘Margin’ is the percentage of the position needed.

2. AvaTrade offers a 200:1 leverage or a 0.50% margin. Which converts to $1 for every $200 a trader would need to invest.

So for instance if a trader thinks that the price for one Troy ounce of Palladium which is at $2154 is going to rise and wants to buy 10 units, the total price would be $21,540. The trader would have to invest only $107.07.

Many Instruments, Different Leverages and Chosen Platform

As in the case of AvaTrade they offer many instruments, each has a different leverage based on the platform that is chosen by the trader.

Before commencing trades, it is important to make sure what the leverage is on the specific platform.

• AvaTradeAct offers 200:1 leverage
• MetaTrader4 offers 400:1 leverage
• Forex pairs have the highest leverage
• Gold is 200:1
• Silver and platinum is 50:1
• Crude oil is 100:1

To avoid a ‘margin call’ traders should have enough equity in their account balance to cover any losses should the market go in the wrong direction, so that they can continue trading.

Margin Call

If any open position should lose potential value, and the remaining collateral in your account is in danger of falling below the minimum margin limits, you can expect to get a ‘margin closeout’. This should be avoided, as it will cause all tradable open positions to close automatically at the current fxTrade rates. So it is advisable to have sufficient funds in your account to cover any potential losses and keep track of opened positions.

AvaTrade offers traders a choice of over 250 forex and CFD instruments to trade with a maximum leverage of 1:400 and highly competitive spreads. With plenty of platforms to choose from with advanced charting features and automated trading for copying trades of more successful and experienced traders.

They offer one of the most comprehensive training academies with free online videos, a free eBook that covers Forex trading strategies, video tutorials, all hosted by leading experts and lots more. Most importantly they offer an introduction to the online trading world for novices, which covers all the basics of Forex and CFD trading.

Traders can also take advantage of their free demo account, to practice trades and familiarize themselves with the platform before investing their own money.

Safe and Trusted

AvaTrade is recognized by several award giving bodies and is authorized and regulated by the Central Bank of Ireland, the Australian Securities & Investments Commission, the Financial Services Agency and the Financial Services Commission.

Click here to open an account with AvaTrade!

*Please be aware that trading Forex and CFDs can be a risk to your investments. You should only trade with money that you can afford to lose.

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