Leverage is a facility that enables you to get a much larger exposure to the market you’re trading than the amount you deposited to open the trade. Leveraged products, such as CFDs, magnify your potential profit but also your potential loss. Leverage gives the possibility to an investor to trade with more funds than he actually has in his account, giving the opportunity of having maximized outcome or can lead to significant losses
THE HIGHER THE LEVERAGE, THE HIGHER THE RISK.
Example: If a client will deposit 10.000$ in his trading account and he selected a leverage of 1:100, the mathematics is: 100 x 10.000 = 1.000.000$
LET'S SAY CLIENT HAS 1:100 LEVERAGE AND HE IS ABLE TO OPEN A 1 LOT POSITION AND 10 PIPS ARE EQUAL TO $100 (1 PIP = 10$, 10 PIPS = 100$) Now if he will double his leverage to 1:200 and open a 2-lot position with the same amount of required margin (for 1 lot standard with 1:100 leverage margin needed is 1000$, for 2 lots standard with 1:200 leverage margin needed is as well 1000$), then 10 pips are now worth $200 (because the volume also increased to 2 lots) and he has essentially doubled his risk. (WHERE PIP FORMULA: CONTRACT SIZE X MINIMUM PRICE FLUCTUATION) EX: 100.000 X 0.00001 (FOR 1 LOT PIP VALUE) 200.000 X 0.00001 (FOR 2 LOT PIP VALUE