Leverage is the use of an initial deposit to open a position with borrowed funds. If you trade using leverage, you increase your buying power but also concurrently increase the amount of capital at risk of loss should your trading activities result in a loss. You should also be aware of how much leverage you are trading on, and the margin (deposited funds) required to maintain your open positions.


Forex is traded on margin, meaning you only need to deposit a percentage of the full amount that you wish to trade. For example, the leverage for a specific instrument is 500:1, the margin that you would need to invest is only 0.2% of the total trade value. Supposed you place a trade worth US$2,000 using leverage 500:1, which has an initial margin rate of 0.2%. This means that you are required to at least make a deposit 0.2% of the total value of the position which is $40.