• Defining Leverage
• A Financial Leverage Example
• Forex Trading With Leverage
• Forex Trading Without Leverage
• To Leverage or Not to Leverage

Today a lot of traders think that trade Torex without leverage is the best solution and highly recommended, both for safety in work and for conservative profit (which is expected to be higher than the annual interest from the deposit on the bank account). Actually, it is not. If a trader works in Forex only on his funds, he will still be charged swap and spread, and he will still have a deposit level, and he will have to close trading positions in the market with a loss. One will not be able to enter the market in such a way that he can always wait for the position to make a profit. 

On the other hand, everyone will agree that Forex leverage is a beneficial tool for all parties involved in currency trading. Now, this opportunity is perceived by participants as a great chance to open a successful trade without having a lot of personal funds. Experienced players know what leverage is and how to use it properly. Proper use of virtual funds, which are provided by brokers, can bring a decent income. 

So, let's take a closer look at this topic and try to decide what type of trading is better - with leverage or without.

Defining Leverage

Forex leverage is the ratio of the volume of trader's money involved in a transaction to the total amount of funds available on deposit.

Brokers and dealing centers (DC) provide different leverage values from 1:1 to 1:1000 (some brokers). The leverage is a virtual loan that is provided to a trader to make a trade. 
To enter the interbank currency market, you need to step over a certain threshold, which is set at $10,000. Therefore, for those who do not have such an amount, and begins his work with a small deposit (e.g. $500), has the opportunity to use the leverage to increase the money in the position and, accordingly, profits, the opportunity to enter the interbank currency market. 
The use of credit resources of the broker does not impose certain obligations and payments to the broker. The credit is given for the transaction without transfer to the trader's account and is immediately withdrawn for the trade. It sounds scary, but in practice, everything turns out to be easier. 

Broker does not risk its money; all the risks are assumed by the trader. In the case of the closing of a profitable position, the broker will deduct the amount of borrowed funds, all the rest remains to the trader. When closing a losing trade, the broker also deducts his funds, the lack of which is filled out from the trader's deposit. If such a situation occurs, a Margin Call situation takes place. 

A margin call is a call to the trader with the notification that his account is running out of funds, he can either replenish the trading account or close the position with some loss. This was relevant when trading was executed over the phone. Now, this function has become automatic. When a trade comes to a loss, the broker forcibly closes all trades as soon as a certain amount of loss is reached. The amount the broker will return will be equal to the amount of deposit minus loss.

A Financial Leverage Example

To get a clear understanding of what Forex leverage is, let us have a look at the example:

Let`s say, on a trading account with a balance of $1000, the leverage is 1:100. We decided to open a trade on the EUR/USD pair of 10,000. The position is opened at the price of 1.0950, Stop Loss is placed at 1.0850. The margin required to open a position is €10,000 x 1/100 x 1.095 = $109.50. In order not to waste precious time calculating the margin for each and every position, here is a Margin Calculator. For a $10,000 position volume, one pip (4th decimal place) is $1, and the difference between the opening price of the position and the level of limitation of losses is 100 pips. Therefore, if the price goes in the opposite course, the loss will be $100. Without limiting the losses, they could be much bigger depending on when the position is closed. One can set a Stop Loss for both a short and a long position, and choose the price at which it will trigger. This is why Stop Loss is an indispensable tool for risk management.