How to calculate Forex Leverage
In simple terms, leverage is the ability to be in control of a huge sum of money without spending too much money yourself and borrowing the rest instead.
For instance, a leverage ratio of 100:1 means that you, as a trader can trade up to $10,000 worth of currency by making a deposit of $100. This is on a higher side but you get the point, right? Most brokers allow only up to a 50:1 ratio to limit risk.
This concept is huge in the forex market and is utilized by both companies and investors. Investors use leverage to increase their returns on investment by making profits on fluctuations in exchange rates of two different currencies. Likewise, companies use it to finance their assets so that instead of utilizing stock to get capital, they maximize on debt financing in order to increase the value of their shares.