If you’ve spent any time researching forex, you’ve no doubt come across the term “leverage.” You may have seen traders talking about how to get more leverage — or you might have seen them warning each other about the dangers of leverage. But what exactly is leverage in forex and how can you use it safely? We’ll cover some of the things you need to know to use leverage in forex. We’ll show you how to get leverage for currency trading, how to use it safely and how to maximize your profits.
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Account Minimum
Pairs Offered
1 Minute Review
FOREX.com is a one-stop-shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker. You can’t invest in the stock or bond market through your FOREX.com and you cannot open an account with tax advantages. The confusing pricing and margin structures may also be overwhelming for new forex traders.
Best For
- MetaTrader 4 users
- Beginner forex traders
- Active forex traders
Pros
- Impressive, easy-to-navigate platform
- Wide range of education and research tools
- Access to over 80 currencies to buy and sell
- Leverage available up to 50:1
Cons
- Cannot buy and sell other securities (like stocks and bonds)
- Confusing margin requirements that vary by currency
- Limited customer support options
- Cannot open an IRA or other retirement account
Commissions
Account Minimum
1 Minute Review
IG is a comprehensive forex broker that offers full access to the currency market and support for over 80 currency pairs. The broker only offers forex trading to its U.S.-based customers, the brokerage does it spectacularly well. Novice traders will love IG’s intuitive mobile and desktop platforms, while advanced traders will revel in the platform’s selection of indicators and charting tools. Though IG could work on its customer service and fees, the broker is an asset to new forex traders and those who prefer a more streamlined interface.
Best For
- New forex traders who are still learning the ropes
- Traders who prefer a simple, clean interface
- Forex traders who trade primarily on a tablet
Pros
- Easy-to-navigate platform is easy for beginners to master
- Mobile and tablet platforms offer full functionality of the desktop version
- Margin rates are easy to understand and affordable
- Access to over 80 currency pairs
Cons
- U.S. traders can currently only trade forex
- Customer service options are lacking
- No 2-factor authentication on mobile
Account Minimum
Pairs Offered
1 Minute Review
Though Australian and British traders might know eToro for its easy stock and mobile trading, the broker is now expanding into the United States with cryptocurrency trading. U.S. traders can begin buying and selling both major cryptocurrencies (like Bitcoin and Ethereum) as well as smaller names (like Tron Coin and Stellar Lumens).
eToro offers traders the opportunity to invest their assets into premade portfolios or cryptocurrencies, similar to services offered by robo-advisors through traditional brokers. Though eToro isn’t a one-stop-shop for everything an investor needs, its easy-to-use platform and low spreads is a great way to enter the cryptocurrency market.
Best For
- International Forex/CFD Traders
- New cryptocurrency traders looking for an easy-to-use platform
- Traders who want to buy and sell cryptocurrencies on-the-go
Pros
- Simple platform that is easy to master
- CopyTrader feature that allows new traders to copy the same strategies used by professionals
- Virtual dummy account that gives you $100,000 to practice trades
Cons
- U.S. traders currently limited to cryptocurrencies
- Only 15 major coins available to trade
Account Minimum
Pairs Offered
1 Minute Review
HYCM is 1 of the world’s leading forex brokers, offering investors access to over 69 unique currency pairs. However, forex isn’t the only thing the broker offers — HYCM also offers high rates of leverage, stock and ETF trading, commodity investing and much more. Getting started with HYCM is quick and easy, and most investors can open an account in as little as 10 minutes.
HYCM offers a varying fee structure, which allows investors to choose the spread option that’s best for them. A wide range of educational and investing tools are available, which can be equally beneficial to both experienced and novice traders. Though HYCM isn’t currently available in the United States, it can be a great choice for residents of the other 140 countries where it offers service.
Best For
- Investors who want a customizable fee schedule
- Traders comfortable using the MetaTrader platform
- Islamic traders who need swap-free accounts that don’t build interest
Pros
- Wide range of currency pairs available
- Excellent selection of educational tools
- $0 deposit and withdrawal fees
Cons
- Not currently available to traders based in the U.S.
Account Minimum
Pairs Offered
1 Minute Review
A fully regulated broker with a presence in Europe, South Africa, the Middle East, British Virgin Islands, Australia and Japan, Avatrade deals with mainly forex and CFDs on stocks, commodities, indexes, forex, cryptocurrencies, etc. This brokerage is headquartered in Dublin, Ireland and began offering its services in 2006. It offers multiple trading platforms and earns mainly through spreads.
Best For
- Beginners
- Advanced traders
- Traders looking for a well-diversified portfolio
Pros
- Controlled by regulatory agencies of multiple countries
- Choice offered in terms of trading platforms
- Support available in 14 languages and trading platforms in 20 languages
- Practice/demo account available for trying out
- Breadth of trading assets
Cons
- Does not accept customers from the U.S. as it isn’t regulated in the U.S.
- Transferring funds to the account may take up to five days; withdrawals could take up to 10 days
How Do You Use Leverage in Forex?
In forex trading, leverage is the ability to enter a position that’s more valuable than the amount of money you have in your brokerage account. In more simple terms, it’s the ability to borrow credit from your forex broker to place larger trades.
Most brokers calculate leverage using a ratio of dollars in your account versus dollars you can trade with. For example, the most commonly-used leverage ratio in forex is 1:100. If you have 100:1 leverage, it means that for every dollar you deposit in your account, you can buy currency with the power of $100. Using leverage is one of the best ways to invest in the forex market because currency price movements are often small. Let’s take a look at a basic example.
Leverage Example
Let’s say you have $1,000 in your forex account. You believe that the Canadian dollar will soon rise in value, so you invest your entire account balance into Canadian dollars. When you buy, $1 is equal to CA$1.327, which means that you add about CA$1,327 into your account.
At the end of the day, the value of the U.S. dollar falls in comparison to the Canadian dollars — $1 is now worth only CA$1.320. You exchange your money back and receive about $1,005. This means that your total profit is about $5 — and that’s before you pay broker fees.
Leverage is necessary because a currency may only increase or decrease in value by a small percentage each day. If you go through the same example listed above but with 1:100 leverage, you’d see a total profit of $500 instead of $5.
What is Margin in Forex?
If you’ve traded stocks before, you may have heard traders refer to trading forex “on the margin.” What is margin trading in forex?
In general, margin trading in forex is the same thing as using leverage. Brokers express margin percentages in a different way. When a broker uses the margin standard, it usually expresses the value of your leverage as (dollars you can trade with):(dollars in your brokerage account). For example, if your broker offers you 2:1 leverage, it means that for every $1 in your account, you can trade with the power of $2.
Forex vs. Stock Margin Accounts
If you’ve traded stocks before, you’re probably familiar with how margin accounts work. However, there are a few key differences you should be aware of.
| Difference | Stock Margin Account | Forex Margin Account |
|---|---|---|
| Interest | Most stockbrokers treat your margin as a loan and charge interest. | Forex brokers rarely charge interest on your leverage. |
| Size | Stockbrokers limit the amount of leverage you can use. The maximum margin you’ll typically find on a stock account is 2:1. | Forex brokers offer much more leverage. The minimum margin you’ll typically find available is around 10:1. |
| Calls | A margin call occurs when a trade moves against the trader, causing a broker to require it to deposit more money to cover the difference. Margin calls are common in stock trading. | Forex traders usually aren’t subject to margin calls. |
How Much Leverage Should I Use?
Many forex traders are attracted to the currency margin because they don’t need thousands of dollars to begin generating large profits. However, it’s crucial to remember that leverage can also be incredibly dangerous — especially for new traders. When you use 100:1 leverage, you can experience 100 times the losses. This means that while there is the potential for major profits with a small investment, it’s also very easy to completely wipe out your initial investment.
This makes it especially important to use the correct level of leverage for your trades. You might be able to get leverage up to 1,500:1 but it’s not a healthy way to trade and may quickly put you into debt. The most common leverage rate used in forex is 100:1, but we recommend beginning with 50:1. This is a lower risk level and requires a full 2% price movement to empty your initial investment — something that’s very uncommon with currency movements. Remember that you can always increase your leverage later on when you’re a more experienced trader.
How Can I Use Leverage Safely?
There are a few steps that you can take to safeguard your initial investment when you use leverage. Let’s take a look at a few tips you can use for smarter leverage trading.
Use Stop-Loss Orders
A stop-loss order is a type of sell order that helps you limit the total loss you’ll incur on your trade. When you place a stop-loss order, you tell your broker that if your held currency falls to a certain price, you want to sell immediately.
Always place a stop-loss order when trading currencies, especially if you won’t be actively monitoring price on an hourly basis. We recommend risking no more than 2% of your total capital on a single trade.
Trade Major Currency Pairs
When you’re just getting started trading forex, you’ll want to stick to trading major currencies. The USD, CAD, EUR and JPY are some of the most commonly traded currencies, and they’re also some of the most stable. These currencies are tied to strong, long-standing economies, which means that they’re unlikely to lose a large percentage of value in a short amount of time. Avoid the currencies of developing countries or countries experiencing political or economic turmoil until you become very confident in your trading.
Do Your Leverage Research
When it comes to forex trading (or any other type of trading), knowledge is power. Before you fund your forex account or think about making your first trade, be sure you understand what you’re getting into. Research the most popular currency pairs for your native currency, learn the difference between technical and fundamental analysis and test out your broker’s trading system by placing a few sample orders.
Finally, remember that currency trading can be risky. Never invest more money than you’re prepared to lose.
Get Started Forex Trading
Are you ready to get started with forex trading? A great broker is the foundation of a successful currency trader. However, you should remember that not every brokerage firm offers access to the forex market. Get started by checking out a few reviews from our favorite forex brokers that offer leverage trading, including T.D. Ameritrade, Forex.com and easyMarkets.
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Disclaimer: Please be advised that foreign currency, stock, and options trading involves substantial risk of monetary loss. Neither Benzinga nor its staff recommends that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. All information contained on this website is provided as general commentary for informative and entertainment purposes and does not constitute investment advice. Benzinga will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on this information, whether specifically stated in the above Terms of Service or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.6% of retail investor accounts lose money when trading CFDs with Pepperstone. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money
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