Forex leverage (also known as foreign currency exchange or fx leverage) refers to the ability to control an amount of money greater than the amount of cash invested into the currency trade. Usually, the ratio can be as high as 1:400, which is the highest leverage offered in any financial market in the world. This is so high leverage gives the individual investor with a small capital the opportunity to trade large amounts of currency and the opportunity to make substantial profits on it. Because of you have been offered a high leverage, it does not mean that you have to fully utilize it, as the quantum of the losses (if any) would also be equally magnified. Most traders work with a leverage of 1:100.

 

For example, the purchase of EUR10,000 (10,000 Euro dollars) would only require a deposit of USD100 of your own money. The trader may lose up to 100% of his investment of USD100, but can gain an unlimited profit. A pip refers to a fourth decimal digit of price. With the leverage of 1:100, as long as the trader profits on this trade, each pip is worth USD1.00 on a USD100 margin. Therefore, a small change in the price reflects a much higher change in the currency value.

Used forex leverage, you can make money fast, or lose money just as fast as well, on your currency trades. You should also put in your "Stop-loss" and "Take-profit" order strategies to lower your exposure to risk.