Knowing Leverage

In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make large profits, and at the same time keep risk capital to a minimum. For example, if you choose 1:200 leverage, which means that a $50 dollar deposit would enable a trader to execute a buy or sell order of $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.