What is Leverage?

Question

What is Leverage?

Accepted Answer

Leverage in the Foreign Exchange (FX) market is the use of borrowed capital, provided by a broker, to increase the potential return of an investment by controlling a large position with a relatively small amount of initial margin, effectively amplifying both potential profits and losses.

Leverage

What is Leverage?

What are the primary mechanics of leverage in FX trading, and how does it relate to margin requirements?

How do regulatory bodies in major financial centers like the US, EU, and Australia restrict leverage ratios, and what is the impact on retail traders?

Why is leverage considered a "double-edged sword," and what specific risk management techniques must FX traders employ to mitigate amplified losses?

When comparing high and low leverage, what are the quantitative differences in capital efficiency and exposure, illustrated with a specific currency pair example?

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