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Understanding Forex Leverage & Margin

What is Forex Leverage?

Leverage in forex trading allows traders to control large positions with a small portion of their own capital. It acts as a loan from the broker, increasing market exposure and amplifying both potential profits and losses. While it enhances gains, it also raises the risk of larger losses.


  • Example: With 1:50 leverage, for every $1 invested, you control $50 in the market. So with a $1,000 deposit, you can control a $50,000 position.

Key Benefits:

  • Increased Market Exposure: Leverage allows traders to enter larger trades without needing significant capital.
  • Potential for Higher Returns: It magnifies profits from small price movements

Key Risks:

  • Increased Risk: Leverage amplifies potential losses, making even small market moves dangerous.
  • Margin Call: If the market moves against you, you may lose your entire deposit (or more) if leverage is not properly managed.

What is Margin?
Margin is the amount of money a trader must deposit with the broker to open and maintain a leveraged position. It acts as collateral to cover potential losses.


  • Example: If the margin requirement is 2%, to open a $100,000 position, you need to deposit $2,000 as margin.


Key Concepts:

  • Initial Margin: The amount needed to open a new position.

  • Maintenance Margin: The minimum equity required to keep a position open. Falling below this level may trigger a margin call.

  • Low Margin Requirement: A 1% margin means you only need to deposit 1% of the trade's value.

  • High Margin Requirement: A 10% margin means you need more funds to open the same position.

What is a Margin Call?
A margin call occurs when your account balance falls below the required margin due to losses. The broker will request additional funds to maintain your open positions.


How it Works:
If the market moves against your position and your account balance drops below the margin requirement, the broker may issue a margin call. You must either deposit more money or close positions to reduce exposure.


  • Example: Suppose you opened a $100,000 position with $1,000 margin (1%). If your account balance falls to $500, the broker may issue a margin call, asking for more funds to maintain the trade.


What Happens if You Don’t Meet a Margin Call?
If you don’t deposit the required funds, the broker has the right to close your positions to prevent further losses.

How to use leverage successfully on the forex market

  1. Understand the Leverage Ratio and its impact on trade size and risk.
  2. Use Stop-Loss Orders to protect your capital and limit potential losses.
  3. Keep Leverage Low, especially if you're a beginner or in volatile markets.
  4. Practice Proper Position Sizing to avoid overexposing your account.
  5. Monitor the Market Closely for sudden changes that could impact your leveraged positions.
  6. Use a Risk Management Plan to diversify your trades and control risk.
  7. Avoid Overtrading by sticking to a structured plan and limiting impulsive trades.
  8. Keep Margin Requirements in Mind to avoid margin calls and automatic position closures.
  9. Adjust Leverage based on market volatility for safer trading.
  10. Practice on a Demo Account to understand how leverage affects your trades before risking real money.

By carefully managing leverage, you can take advantage of larger trading positions while mitigating risk, ultimately achieving greater success in the forex market.

JOIN & JOY US!

WTI Markets

Company address : Unit B, 21/F., THE GLOBE No.79 WING HONG STREET LAI CHI KOK, KOWLOON HONG KONG
Rregistration number : 2347471│Tel : 852-2736 8118 ㅣ Fax : 0504 014 9935 ㅣ support@wtimarkets.com

The information provided on this website is general in nature only and does not constitute personal financial advice. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Investing in CFDs and Margin FX Contracts carries significant risks and is not suitable for all investors. You may lose more than your initial deposit. You don’t own, or have, any interest in the underlying assets. We recommend that you seek independent advice and ensure fully understand the risks involved before trading. It is important that you read and consider disclosure documents before you acquire any product listed on the website. The information and advertisements offered on this website are not intended for use by any person in any country or jurisdiction where such use is contrary to the local laws and regulations. Products and Services offered on this website is not intended for residents of the United States.

WTI Markets 

Company address : Unit B, 21/F., THE GLOBE No.79 WING HONG STREET LAI CHI KOK, KOWLOON HONG KONG 
Rregistration number : 2347471ㅣ Tel : 852-2736 8118 

Fax : 0504 014 9935 ㅣ support@wtimarkets.com 


The information provided on this website is general in nature only and does not constitute personal financial advice. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Investing in CFDs and Margin FX Contracts carries significant risks and is not suitable for all investors. You may lose more than your initial deposit. You don’t own, or have, any interest in the underlying assets. We recommend that you seek independent advice and ensure fully understand the risks involved before trading. It is important that you read and consider disclosure documents before you acquire any product listed on the website. The information and advertisements offered on this website are not intended for use by any person in any country or jurisdiction where such use is contrary to the local laws and regulations. Products and Services offered on this website is not intended for residents of the United States.