To earn more, you need to invest more. Sometimes you can’t even start trading with a small amount. On the Forex market, for example, the minimum position size is €100,000. For some investors, this is a lot of money. Leverage and margin trading solve the problem.

What is leverage

This is the ratio of the investor’s personal money to the total amount he borrowed from the broker for stock exchange transactions. For example, leverage of 1:4 means that the investor took funds that are four times greater than his own. Combinations can be different: 1:100 and even 1:200. In many countries, the maximum ratio is 1:25. Using borrowed money allows you to increase the volume of the transaction and get a bigger profit.

Let's consider trading options without leverage and with it:

Without a loan. You top up your account with $1000. Let's assume that the price of one share is $100. You can buy 10 shares with your money. You can’t buy more - there won’t be enough funds.

With a loan. A broker offers, for example, a leverage of 1:100. That is, you can buy not 10, but 1000 shares. And, accordingly, earn 100 times more.

For small amounts, they usually give a large leverage, for large amounts - a small one. This is standard practice, but beginners should be careful with huge finances. The more money, the higher the risks. Imagine that you bought 10 securities at $ 100 each. If the price of each falls by $ 1, you will lose only $ 10. If you have a thousand shares, the losses will already be $ 1000. So with a fluctuation of just one dollar, you can suffer serious losses. How to reduce the risk?

How not to lose money

There are two simple ways:

• Do not invest everything in one transaction. Even with a large leverage and confidence in success, you do not need to trade with all your capital.
• Use a stop loss - a pending order. It is triggered when the price drops to the set level, after which the transaction is automatically closed.
• Stop loss insures against significant losses and saves time. The trader does not need to constantly monitor price changes. Let's take the same shares at $100 each. If the investor set a stop loss at $99.5, he would lose not $1000, but $500.

The main risks of margin trading:

• Credit is given only for some assets. Only for liquid securities. Ask the broker for a list of assets
• The margin can be both very small and very large. It all depends on the specific asset and the broker's requirements
• The risk of losing investments. The more you invest, the more you can lose. Much also depends on the transaction itself: the characteristics of the securities, strategy and the market situation. Stop loss helps minimize losses

Advantages of using leverage:

• Ease of obtaining. No documents or additional legal procedures. Sometimes such a service for the investor is provided in advance.
• Any assets are suitable for collateral. Not only currency, but also securities
• By increasing capital, you can make profitable deals. Even without funds, a trader has the opportunity to make a good profit
• No commission for using a loan. The broker takes back only the amount provided.
  
                                  We wish you successful trading with ArtCap !