The concepts of forex leverage and margin are widely used in most
financial markets. Investors can use the idea of leverage to
potentially increase their profits on any particular investment. In
the Forex markets, the leverage on offer is amongst the highest
available in the financial markets. Typically, in the forex markets,
leverage levels are set by your forex broker and can vary from 1:1, 1:50,
1:100 and even higher.
To invest in forex trading, the first thing you need is a forex trading account with a broker. The initial amount that needs to be deposited
into this trading account will depend on the margin percentage
agreed between you and the broker.
Standard trading is done on 100,000 units of currency. For this
level of trading, the margin requirement would typically be from 1 -
2%. On a 1% margin requirement, the investor would have to deposit
$1,000 to trade positions of $100,000. Effectively, the investor is
trading 100 times his or her original margin deposit. The leverage
in this case is 1:100. One unit controls 100 units.
Leverage of this magnitude is significantly higher than the 1:2
leverage usually provided on equity trading for example or the 1:15
on the futures market. These leverage levels are only possible due
to the lower price fluctuations on the forex markets as opposed to
the higher fluctuations on the equity markets.
Typically forex markets change less than 1% a day. If the forex
markets fluctuated as much as the equity markets for example, forex
brokers would not be in a position to offer such high leverage as
this would expose them to higher than acceptable risk levels.
Using leverage allows for significant scope to maximize the
returns on profitable forex trades. After all, applying leverage means you
can be controlling currencies worth 100 or more times the value of
your actual investment.
Leverage is a double-edged sword however. If the underlying
currency in one of your trades moves against you, the leverage in
the forex trade will magnify your losses.
If this happens and your margin drops below the required levels,
FXCC may initiate what is known as a "margin call ". In
this scenario, we will either instruct you to deposit additional
funds into your forex account or close out some or all of your positions
to limit loss to both yourself and us.
Your trading style will greatly dictate your use of leverage and
margin. A well thought out forex trading strategy, prudent use of trading
stops and limits and effective money management can make for
profitable application of leverage and ultimately, profitable forex
At FXCC, clients may select their required leverage from 1:1 all
the way up to 1:300.
Clients looking to change their leverage levels can do so by
submitting a request to:
Leverage may increase your profits, but as well can magnify your losses. Please ensure that you understand the mechanics of leverage. Seek independent advice if necessary.