What Is Leveraged Trading?

Leveraged trading is the use of small amounts of funds to invest several times the original amount. It is expected to obtain several times the return rate of the relative investment target, or a loss. Because the increase or decrease of the margin (the small amount of funds) does not move in proportion to the fluctuation of the underlying asset, the risk is high.

Leveraged trading

Advantages of leveraged trading

Foreign exchange margin is the most free, fair, and advanced trading method in all financial markets in the world today. Its advantages are as follows:

1. 24-hour trading

Continuous trading 24 hours a day from Monday to Friday, convenient for entering and exiting at any time, avoiding the risk of gaps in the next day. Although there may be gaps in the news released regularly during the day, you can avoid them through preset orders or short positions . The 24-hour trading also gives office workers plenty of time to invest and make profits, especially the active period of the foreign exchange market is relatively concentrated from 3 pm to 11 pm, which is precisely connected with the domestic stock and futures market from time to time for domestic work. It is convenient for the ethnic group to engage in this most free "second occupation".

Global market

Participants in the foreign exchange market include banks, central banks, financial institutions, import and export traders, investment departments, fund companies and individuals of various countries. According to the statistics of the "International Monetary Fund", the daily global turnover is close to 20,000 Billion US dollars, so as a global market can not be manipulated by some people or institutions. One is to facilitate technical analysis, and the other is to facilitate the entry and exit of large funds. In addition, the foreign exchange market is highly transparent. Quotes, data and news are public. Investors can obtain relevant information at the same time.

3.Less trading varieties

The transactions in the foreign exchange market are concentrated on six varieties of currencies in seven major countries or regions, namely EUR / USD, GBP / USD, AUD / USD, USD / JPY, USD / CHF, and USD / CAD. And the strong linkage of each variety makes it easy to concentrate on doing a good investment analysis.

4.Risk can be controlled flexibly

Because the daily average volatility of the foreign exchange market is about 1%, the leverage provided by the broker is usually 100 times, so that the average daily risk return is between 1% and 100%. The risk level can be controlled by yourself. Starting from the risk-reward, the risk-reward ratio can be gradually increased after entering a stable profit state. For example, if an investor opens an account with 1,000 yuan, only 1,000 (1K) is traded at the beginning of the transaction, and the risk is controlled at 1%. In addition, you can also do margin trading as a firm offer.

5. Two-way transactions, flexible operation

It can be bought first and then sold, and it can also be sold before buying, and the trading currency is not limited (this is an important difference from the real offer), of course, it is also T 0, and you can do short-term repeatedly in the day. Limit orders and stop-loss orders can be preset for trading to keep profits and control losses.

6.High leverage ratio

High leverage is convenient for establishing positions flexibly, but high leverage is a double-edged sword. For high-level investors, under the premise of strict risk control, profit or floating profit can continue to use high leverage to increase positions and provide profiteering. Maybe.

7.Low transaction costs

There is no commission for foreign exchange margin trading, and the income of the bank or broker comes from the spread (the difference between the buying and selling at the same time), and the spread is generally 3-5 points (except for USD / JPY 1 point is 0.01, and other varieties 1 point Is 0.0001, which means 1 / 10,000). In addition, if you hold positions overnight, you can enjoy interest if you hold high-interest currency; if you hold low-interest currency, you need to pay interest. Overall, transaction costs are very low.

8.Low entry barriers

Participation in foreign exchange margin trading can be opened via fax and network, and the procedures are simple. Various foreign exchange brokers have different regulations on the minimum amount of funds for deposit opening. Most of them are between several hundred dollars (mini account) to several thousand dollars (standard account). It can be said that the success of foreign exchange transactions does not depend on the amount of funds, but depends on the amount of funds. The level of operation, as well as small funds, can grow rapidly, which provides another battlefield for the working class to realize their wealth dreams.

Disadvantages of leveraged trading

So, what are the disadvantages of foreign exchange margin trading? It's easy to lose, faster and much more. You can earn 10,000 in half a day, and you can lose 10,000 in half a day. In short, risk is always proportional to return.

If you want to make money from the futures market, such as the foreign exchange market, you must first have sufficient and solid financial knowledge, plus sophisticated trading techniques, to make money from it!

Forex margin trading uses the principle of leverage, and traders can take advantage of the characteristics of capital amplification to quickly accumulate their wealth through the correct trading methods. This wealth-amplified trading method is being accepted by more and more foreign exchange investors.

Calculating profit and loss with leveraged trading

So how does margin trading calculate profit and loss?

For example, an investor wants to buy N lots of euros at a certain position of the euro against the US dollar. If his contract multiple is 20 times, the calculation method of the margin he uses is:

Margin = N × the contract amount per lot multiplied or divided by the opening price (the exchange rate at that time) × 5%. Specifically, the margin used by someone who wants to buy 5 lots of euros at the position of EUR 1.4500 is:

5 × 100000 (Euro) × 1.4500 × 5% = 36250 (USD)

If the EUR / USD rises to 1.4600 in the ensuing period, then the contestant's profit will be:

Profit = 5 × 100000 (Euro) × (1.4600-1.4500) = 5000 (USD)

In terms of profit ratio, if you use the real trading method, the trader buys the euro with 725,000 US dollars at 1.45, and when it rises to 1.46, it will make a profit of 5,000 yuan, or 0.69%, and the profit of the margin trading method is 5000 ÷ 36250 × 100% = 13.79%.

In the actual operation process, it may not be profitable on the day after buying a currency. If the position is not closed before 2 am on the next day, the interest income or expenditure on the currency in the trading account must be calculated. The interest rate is based on International interbank lending rates (from 360 days) prevail.

Although the profits from the same volatility are far more than the actual trading, the high risk is undoubtedly high risk. If the investor enters the market with a slight deviation, it may cause huge losses. Therefore, traders in margin trading first It should be considered risk, especially for newbies. Profit is secondary.