Leverage and Margin

One of the great advantages of forex trading is that you can benefit from Leverage for increased profits. Currencies are usually traded in lots, with a standard lot being equal to $100,000. Since many individual traders can't usually come up with such large amounts, online brokers offer them the possibility to trade with margin. With margins, traders may enter positions with much greater value that they can afford. The collateral you put down to enter such a position is known as the margin. This margin allows you to create leverage to enter the position. Finotec offers leverage up to 200:1 (0.5% margin). This means that with $5,000, you can buy $1,000,000 worth of currency. As you can see, leverage is a great way to increase your buying power but it's a double-edged sword: it can also lead to substantial loss. For this reason, it is recommended that new traders use low leverage to start off with. Let's say you buy 100,000 EUR/USD with a margin requirement of 1%. This means your used margin (the amount available for loss or opening new positions) is $1,000 while your usable margin is $99,000. If your losses exceed your usable margin, you will either need to add money to your account or you broker will close your position (margin call). When trading with Finotec, you can never lose more than you have deposited in your forex trading account