What Is Forex Leverage?
The leverage in forex is very easy to understand. It is the amount of money that you are allowed to borrow from the forex broker. For example when you buy stocks in the stock market you will be required to buy about 100 shares. Lets say that each share costs $10, that means that you would be required to pay $1000. If your stock broker gave you a 50% leverage you would then only be required to pay $500. This is to help traders buy more shares with less money. Then the stock broker would charge you an interest rate on the money that you had borrowed from them.
In Forex however the leverage is a lot higher as the standard amount of money invested int forex is a lot higher. Brokers often offer leverages of up to 400:1. On a leverage of 400:1 for an initial deposit of $250 you would end up with $100,000 to trade with. The big difference between forex trading, and stock trading is the fact that a forex broker will not charge you an interest rate on the money you have borrowed.
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