The explanation given by the majority of brokers on financial leverage is usually as follows: "is an instrument that will help us to make quick and easy money". Here I will explain what is almost never mentioned, and it is his other face, and as leverage can be disastrous if not known in depth.
On the other hand, it is also true that one of the most important benefits of the Forex market is given by the effect of financial leverage. It
is impossible to win in the market without it. This duality is what makes that this concept is difficult to understand and that misunderstandings in lathe spread to it.
is impossible to win in the market without it. This duality is what makes that this concept is difficult to understand and that misunderstandings in lathe spread to it.
Let's start with the simple explanation of the same:
Leverage is a form of virtual credit, which allows us to negotiate on the market withmoney from the broker. We say that we have an account with €1,000, if we use a 1:100 leverage is as if have 100.000 € (1,000 x 100). This means that if a currency climbs2% we should 2% of 100,000 euros, i.e. should €2,000 with an initial capital of only€1,000. If we have lost not lose 100,000 euros but that our lost are limitarian than€1.000 we had in the beginning.
Financial leverage means the use of foreign capital per unit of invested own capital.
Financial leverage is the only way that small investors to participate in a market thatwas originally intended only for banks and financial institutions. Leverage is a necessary characteristic in the Forex market not only because of the magnitude of the capital required to participate in it, but also because major currencies fluctuate on average less than 1% per day.
Without leverage, Forex does not attract capital. That is intended to allow a greatermarket share to investors in accordance with their investment capabilities.
The credit or loan of leverage in the account is guaranteed by the initial deposit. This mechanism prevents that the account may fall into a negative balance. Never losemore money than you listed.
The capital invested in minutes, even seconds may be lost, leverage has its negativeside, and if it is not well used. A real would be worthwhile investing €1,000 and losethem in seconds.
As you already explain in following chapters, an easy way and safely make money it is to follow the market trend, say that the market is bullish (your currency rises in value) you may think that it is a good time to invest your €1,000 with a leverage 1:400,looks like a business safe and round, but although the market is bullish, always small spikes occur down to climb trends are never linear.
Forex
If you invest a small amount of money, never use a high level of leverage, because the loss of your capital is more than safe. A descent into an uptrend is more than likely, if you use a leverage 1:400, this would mean the loss of all your money. I recommend that you always use a leverage of as much 1:100, don't have to be ambitious, in addition that in forex you can do all the operations you want throughout the day.


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