Many people think that you can make money trading forex only by buying currency pairs and selling them at a higher price. The truth is that this is just one way you can use forex trading to make money. There are multiple other options and we will talk about them in this article. Aside from directly trading currency pairs, you can also trade some instruments related to currencies or currency pairs such as the CFDs, options or binary options.
Using a broker's leverage
Maybe you have noticed that most brokers offer a certain level of leverage for your trades. Depending on some factors, they may offer you a leverage of 1:30, 1:50, 1:100 and so on. While the leverage is not exactly a way to make money, it can help you to boost your profits and, unfortunately, make losses if not used wisely.
Thanks to the leverage, traders can make a satisfactory profit even if they have only £100 available for trading. Let’s assume that there is no leverage and you have £100 to execute trades. If the price moves 3 per cent in your favour, you will make a £3 profit. But if you select a broker who gives you a leverage of 1:50 you will open the position with a value of £5,000 and a 3 per cent move in your favour will bring you £150.
However, don't forget that when using the leverage (margin trading) you can increase your profits but you also stand to lose more money than the initial deposit.
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