Leverage, which represents a margin trading ratio, enables traders to borrow a certain amount of money that allows them to trade in much bigger deals. Moreover, leverage allows one to trade using more money than they have in their account. Therefore, you “leverage” your ac- count’s balance to place a bigger trade. Currency rates move very slowly. This makes small trades unfashionable as they only return small profits and losses for every pip rate changes. Therefore, leveraging helps one to trade in larger deals hence amplifying their potential profits and losses.
According to the new ESMA intervention measures, leverage rates can only be offered between a margin of 2:1 and 30:1,depending on the specific instrument.But many brokers offer this upto 3000:1 also.
How Leverage works?
Leverage in Forex trading is all about entering borrowed capital into transactions. The money is borrowed from a broker who acts like a bank that fronts you some cash to invest, which in this case is to buy currencies.