Margin and leverage

Margin is a technique that the Broker Companies grants you with as a loan to multiply your funds that will help you to have power to profit from changes in currency rate, changes of pips. If you have 1000 Euro and you decide to invest in the forex market changes of pips will award you small money, for example EUR/USD is quoted – 1.4365 and you diced that the EUR will rise, you buy this quote and whit, after 3 days the quote is EUR/USD – 1.4372, you are right and have profit of 7 pips, that sums to 0.0007 * 1000 = 0.7 Euro, nice but not enough to by a house in the Caribbean Islands.

Now we take the same amount of money and go to a forex Broker how gives you a margin on your investment, in this example you will have leverage of 1:100 that means they will multiply you funds 100 times, now you invest 1000 Euro * 100 leverage and you have the power of 100.000 Euro in your hands. With the same rate as before 7 pips will grant you 0.0007*100,000 = 70 Euro not a bad profit starting from the same point. In this leverage you can gain forfeit from every change op pip.

What happens in the case of loss – you can loss up to your sum of your deposit and cant loss any amount from the leverage. You need to take under consideration that a big leverage you can have large profits but in the over hand you can loss you deposit very quick, every loss of pip will be a big part of your deposit. That is way we recommend to be careful this the leverage amount a when brokers offer leverage of 1:500 and even more you need to know you can have high profit but loss your money very fast, every pip is counted and worth allot when you margin your investment.