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Published On: Wed, Feb 6th, 2013

Leverage

The use of Leverage refers to the amount in dollar terms or percentage terms of additional buying power in a trader’s account beyond his cash balance.

If a trader is using leverage he puts a cash deposit into the account then uses a credit line to extend the value of the securities he is able to purchase.  The amount of leverage is many times regulated by the trading authorities of the brokerage.  Leverage is an integral part of a trader’s ability to maximize the profits that can be generated in an account. Leverage ranges from 1.5x the cash balance for securities such as Equity Trading to 50x — 500x for Currency Trading.  In the case of Currency Trading, if a trader has his leverage set to 50:1 and he has a cash balance of 1,000EUR he can trade up to 50,000EUR = 50x 1,000EUR.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

 

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