What is leverage?

January 17, 2014

Leverage is the ratio at which defines the amount of borrowed capital, “margin”, that traders are allowed to use to gain access to larger sums of trading capital.

Leverage can heighten profits and losses and should be used wisely. Due to the nature of leverage, MXT has leverage restrictions in place to assist you in minimising risk. However, if you think you are ready to increase your leverage, please see the leverage rates available and apply for leverage change request online. You can also choose to lower your rate if you wish. MXT has a range of leverage offers from 1:1 to 500:1 to suit your trading style.

How does Leverage work?

Leverage is best explained using examples. Please refer to the two scenarios below.

Trader A has $5,000 USD – If Trader A has an account leverage of 100:1 and they wish to use $1,000 on one trade as margin, they will have exposure of $100,000 in base currency ($1,000).  This is calculated as 100 x $1,000 = $100,000 (trade value).

Trader B has $5,000 USD – If Trader B has an account leverage of 500:1 and they wish to use $1,000 on one trade as margin, they will have exposure of $500,000 in base currency ($1,000) = 500 x $1,000 = $500,000 (trade value).

 

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