Leverage is fundamental to forex trading – without it, you’d have to commit huge amounts of capital to earn a return. However, it is important to understand the effect that leverage has on your profits and losses.
When you trade using leverage, your provider is in effect lending you the additional funds needed to cover the full size of your position. This means that your profits and losses will be based on the position’s full value, magnifying both. It also means that your positions could be at risk of being closed automatically if you don’t have the margin required to keep them open.
Learn more about how leverage works with our beginner’s guide to FX.