Many people think seriously about multiplying their capital. First of all, however, you need to find a proven way to see more money in your account. This is especially true in the currency market. Most people decide in this case to use the so-called leverage.
It is carried out, among others, on the Forex market. There is a very wide access to it, depending on how the person gets involved in the above mentioned process.
Leverage, or rather transactions concluded within such leverage, is quite risky. For this reason, each transaction should be analyzed several times in order not to incur any significant losses instead of profit. Leverage is a tool that allows the investor to have at some point more funds at his disposal than before. This tool is willingly used especially when concluding futures contracts.
Financial leverage – how does it work?
Making any transactions on the currency market is quite a complicated activity, which should be approached wisely in order to multiply the funds gained earlier. The size of a given leverage means in practice the ratio of the funds gathered by the investor to the money that can be disposed of. Using leverage you can therefore invest much more capital. If the ratio is 1:100, then every dollar in the investor’s account will mean the possibility of disposing of 100 dollars of capital.
It makes a lot of sense to trade with leverage because you don’t need to have too much money in your account. A small number of them is enough to be able to dispose of much more capital when making investments. Of course, you need to think carefully, preferably in consultation with a financial advisor, so as not to expose yourself to even greater risk. Currencies exchange market does not forgive mistakes.
Use of financial leverage
Leverage can be used in many ways, e.g. when an investor is seriously considering buying the euro for his dollars. It is known that the exchange rates of these currencies are different. It can be assumed that capital worth 3 thousand dollars is allocated for investment. Euro exchange rate can oscillate around 1,1, which is why 1 euro is worth 1.1 $ . The investor must know what amount of euro he wants to buy, if it is 50 thousand euro, then the whole transaction will be 55 thousand dollars.
Having only EUR 3,000 in the account will force the investor to use 1:100 leverage. Therefore, he will need around 450$ for the transaction. It is worth taking into account that the exchange rate of the euro can always rise to e.g. 1.11, then every euro would bring 1 cent profit. The total profit on the given example would amount to around 100$, therefore it is clear that using leverage is profitable if someone does not have a large amount of money in their account.