Leverage (Leverage) in trading
Leverage (Leverage) is a tool that allows traders to open positions larger than their actual capital by borrowing money from the broker. In other words, it enables you to control a large financial position using a relatively small amount.
**Illustrative Example:**
If you have $1,000 in your account and use 1:10 leverage, you can open a position worth $10,000
If the price increases by 1%, your profit will be $100
(1% of 10,000) instead of $10 (1% of 1,000)
**Common Types of Leverage**
1. 1:2 (doubling capital twice)
2. 1:10 (10 times capital increase)
3. 1:50 (50 times capital increase)
4. 1:100 or more (used in contracts for difference)
**Advantages of Leverage**
✅ **Increased potential profits**
(with small market movements).
✅ **Ability to trade with limited capital**.
✅ **Greater trading opportunities in various markets**.
**Disadvantages of Leverage**
**Increased potential losses**
(losses double at the same rate as profits).
**Risk of "Margin Call" where the broker may close your position if the loss exceeds a certain threshold.**
**Exposure to sharp market fluctuations, especially in cryptocurrencies and highly volatile markets.**
**Tips for Using Leverage Wisely**
1. **Do not use high leverage at the beginning**
(start with 1:5 or 1:10 until you gain experience).
2. **Use Stop Loss orders**
To avoid significant losses.
3. **Do not risk more than 1-2% of your capital on a single trade**
4. **Understand the broker's margin and leverage policy before trading**$BNB
**Summary**
Leverage is a double-edged sword; it can enhance your profits or double your losses. Therefore, it should be used carefully and with sufficient knowledge of risk management.
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