This concept is a must for beginner Forex traders. The leverage is the capital provided by a Forex broker to increase the volume of trades its customers can make.
Example:
- The face value of a contract or lot equals 100,000 units of the base currency. In the case of EUR/USD, it would be 100,000 euros.
- If you use a 1:10 leverage rate and have 1,000 euros in your trading account, you can trade a currency pair with a $10,000 position size.
- If the trade is successful, leverage will maximise your profits by a factor of 10. However, keep in mind that leverage also multiplies your losses to the same degree.
Therefore, leverage should be used with caution, regardless of whether we are talking bout trading for beginners or experts. If your account balance falls below zero euros, you can request the negative balance policy offered by your broker. ESMA regulated brokers offer this protection. Using this protection will mean that your balance cannot move below zero euros, so you will not be indebted to the broker.