Although the ability to earn significant profits by using leverage is substantial, leverage can also work against investors. For example, if the currency underlying one of your trades moves in the opposite direction of what you believed would happen, leverage will greatly amplify the potential losses. To avoid a catastrophe, forex traders usually implement a strict trading style that includes the use of stop orders and limit orders designed to control potential losses.

Leverage simply allows traders to control larger positions with a smaller amount of actual trading funds. In the case of 50:1 leverage (or 2% margin required), for example, $1 in a trading account can control a position worth $50. As a result, leveraged trading can be a "double-edged sword" in that both potential profits as well as potential losses are magnified according to the degree of leverage used.
Founded in 2008, ForexLive.com is the premier forex trading news site offering interesting commentary, opinion and analysis for true FX trading professionals. Get the latest breaking foreign exchange trade news and current updates from active traders daily. ForexLive.com blog posts feature leading edge technical analysis charting tips, forex analysis, and currency pair trading tutorials. Find out how to take advantage of swings in global foreign exchange markets and see our real-time forex news analysis and reactions to central bank news, economic indicators and world events.

In every foreign exchange transaction, you are simultaneously buying one currency and selling another. In effect, you are using the proceeds from the currency you sold to purchase the currency you are buying. Furthermore, every currency in the world comes attached with an interest rate set by the central bank of that currency's country. You are obligated to pay the interest on the currency that you have sold, but you also have the privilege of earning interest on the currency that you have bought. For example, let’s look at the New Zealand dollar/Japanese yen pair (NZD/JPY). Let’s assume that New Zealand has an interest rate of 8% and that Japan has an interest rate of 0.5% In the currency market, interest rates are calculated in basis points. A basis point is simply 1/100th of 1%. So, New Zealand rates are 800 basis points and Japanese rates are 50 basis points. If you decide to go long NZD/JPY you will earn 8% in annualized interest, but have to pay 0.5% for a net return of 7.5%, or 750 basis points.


Leverage in finance pertains to the use of debt to buy assets. This is done in order to avoid using too much equity. The ratio of this debt to equity is the formula for leverage (debt/equity ratio) whereby the greater the proportion of debt, the higher the amount of leverage. If a company, investment or property is termed as "highly leveraged" it means that it has a greater proportion of debt than equity. When leveraged debt is used in such a way that the return generated is greater than the interest associated with it, then an investor is in a favourable position.
Live Spreads Widget: Dynamic live spreads are available on Active Trader commission-based accounts. When static spreads are displayed, the figures are time-weighted averages derived from tradable prices at FXCM from July 1, 2019 to September 30, 2019. Spreads are variable and are subject to delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.
A Product Disclosure Statement (PDS) for our financial products and our Financial Services Guide (FSG) are available at our website. The PDS and FSG are important documents and should be reviewed prior to opening an account with AxiCorp and deciding whether to acquire, hold or dispose of AxiCorp’s financial products or services. The information on this website is for Australian and New Zealand residents only.
In every foreign exchange transaction, you are simultaneously buying one currency and selling another. In effect, you are using the proceeds from the currency you sold to purchase the currency you are buying. Furthermore, every currency in the world comes attached with an interest rate set by the central bank of that currency's country. You are obligated to pay the interest on the currency that you have sold, but you also have the privilege of earning interest on the currency that you have bought. For example, let’s look at the New Zealand dollar/Japanese yen pair (NZD/JPY). Let’s assume that New Zealand has an interest rate of 8% and that Japan has an interest rate of 0.5% In the currency market, interest rates are calculated in basis points. A basis point is simply 1/100th of 1%. So, New Zealand rates are 800 basis points and Japanese rates are 50 basis points. If you decide to go long NZD/JPY you will earn 8% in annualized interest, but have to pay 0.5% for a net return of 7.5%, or 750 basis points.
In forex, investors use leverage to profit from the fluctuations in exchange rates between two different countries. The leverage that is achievable in the forex market is one of the highest that investors can obtain. Leverage is activated through a loan that is provided to an investor by the broker that is handling the investor’s or trader’s forex account.
In addition, there is also no interest on leverage, instead, FX Swaps are usually what it takes to transfer your position overnight. However, unlike regular loans, the swap payments can also be profitable for a trader. To sum up, leverage is a tool that increases the size of the maximum position that can be opened by a trader. Now we have a better understanding of Forex trading leverage, let's see how it works with an example.
The bottom line is that you want to pick carry trades that benefit not only from a positive and growing yield, but that also have the potential to appreciate in value. This is important because just as currency appreciation can increase the value of your carry trade earnings, currency depreciation can erase all of your carry trade gains – and then some. 
All forex trades involve two currencies because you're betting on the value of a currency against another. Think of EUR/USD, the most-traded currency pair in the world. EUR, the first currency in the pair, is the base, and USD, the second, is the counter. When you see a price quoted on your platform, that price is how much one euro is worth in US dollars. You always see two prices because one is the buy price and one is the sell. The difference between the two is the spread. When you click buy or sell, you are buying or selling the first currency in the pair.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
The concept of leverage is used by both investors and companies. Investors use leverage to significantly increase the returns that can be provided on an investment. They lever their investments by using various instruments that include options, futures and margin accounts. Companies can use leverage to finance their assets. In other words, instead of issuing stock to raise capital, companies can use debt financing to invest in business operations in an attempt to increase shareholder value. 
When you trade forex, you're effectively borrowing the first currency in the pair to buy or sell the second currency. With a US$5-trillion-a-day market, the liquidity is so deep that liquidity providers—the big banks, basically—allow you to trade with leverage. To trade with leverage, you simply set aside the required margin for your trade size. If you're trading 200:1 leverage, for example, you can trade $2,000 in the market while only setting aside $10 in margin in your trading account. For 50:1 leverage, the same trade size would still only require about £40 in margin. This gives you much more exposure, while keeping your capital investment down.
(Note that the leverage shown in Trades 2 and 3 is available for Professional clients only. A Professional client is a client who possesses the experience, knowledge and expertise to make their own investment decisions and properly assess the risks that these incur. In order to be considered to be Professional client, the client must comply with MiFID ll 2014/65/EU Annex ll requirements.)
Consequently, you should consider the information in light of your objectives, financial situation and needs. CMC Markets Asia Pacific Pty Ltd ABN 11 100 058 213, AFSL No. 238054 (the derivative product issuer), CMC Markets Stockbroking Limited, Participant of the ASX Group (Australian Securities Exchange) and SSX (Sydney Stock Exchange) and Chi-X (Chi-X Australia), ABN 69 081 002 851, AFSL No. 246381 (the stockbroking services provider) provides the financial products and/or services. It's important for you to consider the relevant Product Disclosure Statement ('PDS') and any other relevant CMC Markets Documents before you decide whether or not to acquire any of the financial products. Our Financial Services Guide contains details of our fees and charges. All of these documents are available at cmcmarkets.com.au or you can call us on 1300 303 888.
Our Interactive plot offers you indicators to detect patterns on Japanese Candlesticks (see the list of Candlestick Patterns below). It’s a recommended tool for those traders that use Candlesticks to take trading decisions. This tool is very useful to get an immediate notification being displayed as soon as the pattern occurs. The Japanese candlestick theory establishes a series of patterns which are statistically previous to potential change or interruption of trends, a turning point in a current trend, etc.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
Currencies are traded on the Foreign Exchange market, also known as Forex. This is a decentralized market that spans the globe and is considered the largest by trading volume and the most liquid worldwide. Exchange rates fluctuate continuously due to the ever changing market forces of supply and demand. Forex traders buy a currency pair if they think the exchange rate will rise and sell it if they think the opposite will happen. The Forex market remains open around the world for 24 hours a day with the exception of weekends.
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