Thursday, August 19, 2010

Forex is bringing high-profit leverage

Usually when an investor makes a trade, he has a set amount of money in his account, let's say $1000. He then buys stocks or bonds for $1000.

Suppose on the other hand, that this investor took his $1000 and opened a Forex account. Now the game changes. Unlike stocks and bonds, Forex is not regulated by a governing body, meaning there are no limits as to how much leverage can be used. Let's say the investor takes his $1000 in a Forex account and buys one or more currency pairs. The broker will then offer the investor to loan him up to several hundred times the value of the brokers account. This means that the investor can leverage his account 100:1, 200:1 even up to 400:1. This essentially means, that for an initial deposit of $1000, he can now trade for $100,000 and even more.

How's that for leverage? It's easy to see why Forex trading is so tempting. You can never lose more than the money in your account though. That means you get all the opportunity for leveraged profits, but only risk losing the unleveraged amount in your account.

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