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Forex articlesForex articles and tutorials – fundamental analysis and technical analysis of the forex market.
Why forex brokers offer Leverage
Forex brokers earn from the spread, the difference between the buying and the selling price of a currency pair at one moment. They are happy to offer leverage because the higher the volume of a trade is the valuable are the pips in the spread.
For example:
Let’s say you don’t use leverage and trade with a 1,000$ account. You make a trade with all the 1,000 usd capital available and the spread is 3 pips. Every pips is worth 10 cents (10,000/1,000). The brokers is earning 30 cents in commission for your trade.
Now let’s add the leverage
You use the same 1,000 usd account and a 100:1 leverage. Now the volume of the trade is 100,000$. Every pip is worth 10$ (10,000/100,000). The forex broker now earns 30$ for intermediating your transaction. He will keep his commission regardless of the fact that you win or lose. That is why some brokers offer a leverage of up to 500:1. They can maximize their profits from your trades and at the same time they make it easier for you to be able to start with a very small capital.
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Categorie: Afaceri si economie
Subcategorie: Finante si Banci
Data inscrierii: 2010-05-25
Numar de afisari: 2078
Numar note acordate: 1
Pagina Web: www.forexdyr.com
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