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Leverage is the use of various financial instruments or borrowed funds, such as margin, to increase the potential return of an investment. Leverage is a double edge sword and can be considered dangerous weapon because traders add bigger position sizes without actually owning the funds to cover potential losses. But it also can be a very powerful tool if it has been utilized to increase the investments power as long as traders have efficient money and risk management plans associated with it.

For Example: in order to trade 100,000 units of EUR/USD. Traditionally, traders need to have 100,000 US dollars physical owned money or we say 1:1 leverage. But with 100:1 leverage, traders are only required to deposit 1/100 of the nodded amount which is equivalent to 1,000 US dollars.

If you are a kind of trader considering and seeking to have relatively high leverage, you should be familiar with the following:

1. The rules and boundaries of this kind of trading activities and how you will handle it.
2. Fully understand all what is leverage (in) Forex and how it works, both for you and for counter parties.

The use of Leverage can be highly profitable but it can be your worst nightmare and enemy if it has not been utilized in an efficient way. Let us go through a practical example in order to illustrate how leverage can work for and against traders.

Having a 200-1 leverage account means that every $1000 you are willing to invest can control a $200,000 position. Standard lot actual value in the market equals $100,000, so by investing $2000 in the market with your broker you are getting 2 standard lots. let us say that you will have 500:1 leverage, this will mean that you will have more investments power and this will be great for you if the market went in your direction and your plans has been fulfilled but       it also means that even a small move against your opened order can leave you without any funds and clear all your investments.

So to conclude this matter; the high degree of leverage that is often obtainable in trading activities can work against traders as well as their favors. The use of leverage can lead to large losses as well as gains.

forexgen provides more info about the leverage, for more info..

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