sevenstarfx
New member
In FX trading, margins and leverage play crucial roles in determining the size of positions traders can control relative to their invested capital.
- Margins: Margins represent the collateral required to open and maintain a trading position. It's a percentage of the total trade size, typically set by brokers. Margins act as a security deposit to cover potential losses incurred from adverse price movements. By trading on margin, traders can control larger positions with a smaller amount of capital.
- Leverage: Leverage amplifies the impact of price movements on trading positions. It allows traders to control a more substantial position size than their invested capital alone would permit. Leverage is expressed as a ratio, such as 50:1 or 100:1, indicating the multiple by which a trader's capital is magnified. While leverage enhances profit potential, it also increases the risk of losses, as losses are magnified in the same way as gains.