Leverage in the Forex market is the ratio of cash to the size of the trader’s leverage broker. Leverage allows you to trade large amounts of money with small capital.
In other words, leverage means borrowing funds for a possible increase in income. Its size is usually several times higher than the investment. It is not fixed, and it varies depending on the terms of trade of a particular brokerage firm in the Forex market.
Thanks to margin trading, any market participant has access to Forex. They can speculate using loans. The trader appears a certain amount of money (margin) required to support trading positions.
Choosing the Appropriate Size of Leverage
Answering this type of question is quite tricky because there are no universal values for leverage. It is primarily influenced by choice of a trading strategy a trader wants to choose and his opinion about future market movements. If we talk about scalpers and traders who prefer short positions, they tend to use significant leverage because they need operational transactions. Traders with long positions often trade with the small size of leverage. As a result, it needs a level which will allow the trader to trade comfortably.
Typically, the Forex leverage level of 1:100 is the most optimal. In this case, if you invested $1,000, which is the total amount available for the trade, it will be up to 100,000 dollars. Those with a small number of funds prefer to trade on margin (or using leverage) as their deposit is not enough to open a sufficient number of trade positions.