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Leverage 1:100 Forex Brokers. Leverage is one of the most important characteristics of Forex brokers. Most brokers offer several types of leverage depending on the requirements of your clients, so in most cases you値l be able to choose between 1:50, 1:100, 1:200, etc. Each type of leverage is suitable for traders with specific needs and a special strategy. For example, if you are willing to risk a major fraction of your investment in order to have a chance to win more money, then you値l prefer to pick the services of a broker that offers a higher leverage. By using the leverage offered by your broker, you値l borrow money from them in order to be able to buy more assets. Forex Brokers with 1:100 Leverage. For example, if you invest $1,000 and use a leverage of 1:100, you値l be able to spend a total of $100,000 on different assets. This is a very attractive offer, especially if you are confident that your strategy won稚 fail. However, if you fail to predict the price痴 movement, then it is very likely that you値l lose your entire investment in a matter of hours. This is why you should be extremely careful while trading with leverage. If you are interested in using the services of Forex broker who offer a leverage of 1:100, then here are some of the most popular companies: Where to Trade. $5 Min Deposit!* Pepperstone. $100 Min Deposit!* IQ Option. $10 Min Deposit!* Related. Quick Links. Binary Tribune. Founded in 2013, Binary Tribune aims at providing its readers accurate and actual financial news coverage. Our website is focused on major segments in financial markets stocks, currencies and commodities, and interactive in-depth explanation of key economic events and indicators. Financial Risk Disclosure. BinaryTribune.com will not be held liable for the loss of money or any damage caused from relying on the information on this site. Trading forex, stocks and commodities on margin carries a high level of risk and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. Cookie Policy. This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy. © Copyright 2018 — Binary Tribune. All Rights Reserved. What Is Leverage? What Is Margin? Why are these two factors important when trading FX? It is important for inexperienced traders and clients who are new to trading FX, or indeed new to trading on any financial markets, to completely understand the concepts of leverage and margin. Too often new traders are impatient to begin trading and fail to grasp the importance and impact these two critical success factors will have on the outcome of their potential success. Leverage, as the term suggests, offers up the opportunity for traders to lever up the use of the actual money they have in their account and risked in the market, in order to potentially maximise any profit. In simple terms; if a trader uses leverage of 1:100 then every dollar they are actually committing to risk effectively controls 100 dollars in the market place. Investors and traders therefore use the concept of leverage to potentially increase their profits on any particular trade, or investment. In FX trading, the leverage on offer is generally the highest available in the financial markets. Leverage levels are set by the forex broker and can vary, from: 1:1, 1:50, 1:100, or even higher. Brokers will allow traders to adjust leverage up or down, but will set limits. For example, at FXCC our maximum leverage (on our ECN standard account) is 1:300, but clients are free to select a lower leverage level. The initial amount that needs to be deposited into a Forex trading account will depend on the margin percentage agreed between trader and broker. Standard trading is done on 100,000 units of currency. At this level of trading the margin requirement would typically be from 1 - 2%. On a 1% margin requirement, traders need to deposit $1,000 in order to trade positions of $100,000. The investor is trading 100 times the original margin deposit. The leverage in this example is 1:100. One unit controls 100 units. It must be noted that leverage of this magnitude is significantly higher than the 1:2 leverage usually provided on equity trading, or the 1:15 on the futures market. These increased leverage levels available on FX accounts are generally only possible due to the lower price fluctuations on the forex markets, compared to the higher fluctuations experienced on the equity markets. Typically forex markets change less than 1% a day. If the forex markets fluctuated and moved in similar patterns as the equity markets, then forex brokers could not offer such high leverage, as this would expose them to unacceptable risk levels. Using leverage allows for significant scope to maximise the returns on profitable forex trades, applying leverage allows traders to control a currency position worth many times the value of the actual investment. Leverage is a double-edged sword however. If the underlying currency in one of your trades moves against you, the leverage in the forex trade will magnify your losses. Your trading style will greatly dictate your use of leverage and margin. Use a well thought out forex trading strategy, prudent use of trading stops and limits and effective money management. Margin is best understood as a good faith deposit on behalf of a trader, a trader puts up collateral in terms of credit in their account, in order to hold open a position (or positions) in the market place, this is a requirement because most FX brokers do not offer credit. When trading with margin and using leverage, the amount of margin required to hold open a position or positions is determined by the trade size. As trade size increases margin requirements increase. Simply put; margin is the amount required to hold the trade or trades open. Leverage is the multiple of exposure to account equity. What is a margin call? We have now explained that margin is the amount of account balance required in order to hold the trade open and we have explained that leverage is the multiple of exposure versus account equity. So let's use an example to explain how margin works and how a margin call might occur. If a trader has an account with a value of ?10,000 in it, but wants to buy 1 lot (a 100,000 contract) of EUR/GBP, they would need to put up ?850 of margin in an account leaving ?9,150 in usable margin (or free margin), this is based on one euro buying approx. 0.85 of a pound sterling. A broker needs to ensure that the trade or trades the trader is taking in the market place, are covered by the balance in their account. Margin could be regarded as a safety net, for both traders and brokers. Traders should monitor the level of margin (balance) in their account at all times because they may be in profitable trades, or convinced that the position they are in will become profitable, but find their trade or trades are closed if their margin requirement is breached. If the margin drops below the required levels, FXCC may initiate what is known as a "margin call". In this scenario, FXCC will either advise the trader to deposit additional funds into their forex account, or close out some (or all) of the positions in order to limit the loss, to both trader and broker. Creating trading plans, whilst ensuring trader discipline is always maintained, should determine the effective use of leverage and margin. A thorough, detailed, forex trading strategy, underpinned by a concrete trading plan, is one of the cornerstones of trading success. Combined with prudent use of trading stops and take profit limit orders, added to effective money management should encourage the successful use of leverage and margin, potentially allowing traders to flourish. In summary, a situation where a margin call might occur is due to use of excessive use of leverage, with inadequate capital, whilst holding on to losing trades for too long, when they should be closed. Finally, there are other ways to limit margin calls and by far the most effective is to trade by using stops. By using stops on each and every trade, your margin requirement is immediately re-calculated. At FXCC, depending on the ECN account selected, clients can choose their required leverage, from 1:1 all the way up to 1:300. Clients looking to change their leverage levels can do so by submitting a request through their trader hub area or by email to: accounts@fxcc.com. Leverage may increase your profits, but as well can magnify your losses. Please ensure that you understand the mechanics of leverage. Seek independent advice if necessary. RISK WARNING: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products, is highly speculative and involves substantial risk of loss. It is possible to lose all the initial capital invested. Therefore, Forex and CFDs may not be suitable for all investors. Only invest with money you can afford to lose. So please ensure that you fully understand the risks involved. Seek independent advice if necessary. RISK WARNING: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products, is highly speculative and involves substantial risk of loss. It is possible to lose all the initial capital invested. Therefore, Forex and CFDs may not be suitable for all investors. Only invest with money you can afford to lose. So please ensure that you fully understand the risks involved. Seek independent advice if necessary. FXCC does not provide services for United States residents and/or citizens. FX Central Clearing Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission (CySEC), under CIF Licence Number 121/10 and operates under the EU Markets in Financial Instruments Directive (MiFID). FX Central Clearing is on the FSA(UK) Register (Reference Number 549790) and EEA Authorised. NFA's Leverage Reduction Proposal in favor of 100:1 leverage. PROPOSED LEVERAGE of 100:1. The NFA has recently requested that the Commodity Futures Trading Commission (CFTC) approve another rule proposal that would place additional restrictions on the margin (leverage) levels that FDMs can offer to forex customers. If the CFTC approves this proposed rule, FDMs will be restricted from offering more than 100:1 leverage on major currency pairs and will be limited to 25:1 leverage on non-majors. NFA has proposed this rule because it is 田oncerned that higher leverage amounts can deplete a customer痴 account balance預nd result in forced liquidation洋uch faster than retail customers realize. CFTC has not yet approved this rule proposal, and there is not yet a specific date for when it would take effect. Effectively, the proposed regulation would limit leverage to 100:1 on major currencies (GBP, CHF, CAD, JPY, EUR, AUD, NZD, SEK, DKK, NOK ) and 25:1 on all others. EXPLANATION OF PROPOSED AMENDMENTS. NFA Financial Requirements Section 12 requires Forex Dealer Members ("FDMs") to collect a security deposit of 1% of the notional value for specified currencies (called major currencies in the rest of this discussion) and 4% of the notional value for all other currencies.1 The rule also provides an exemption from collecting these amounts if an FDM maintains 150% of its capital requirement. When NFA adopted Section 12 in 2003, it required a security deposit of 2% for major currencies and 4% for all other currencies. This was consistent with the margin requirements on the CME痴 IMM at the time, which averaged 2% for major currencies and 3.9% for other currencies. Before the rule became effective, NFA met with a number of FDMs that were concerned with the 2% requirement for the major currencies. These FDMs represented that the industry standard was 1% and that NFA痴 requirement put them at a competitive disadvantage. NFA agreed to re-examine the security deposit requirement and issued an interim no-action position, allowing firms to charge 1% for the major currencies while NFA studied the matter. After evaluating its experience with the 1% level, NFA amended Section 12 to lower the requirement for the major currencies to 1%, and it adopted the exemption mentioned above, except that firms were required to maintain twice their capital requirement to qualify. When NFA adopted the exemption, the minimum capital requirement for FDMs was $250,000. Given the substantial increase in the minimum capital requirement, in August 2008 NFA lowered the exemption threshold from 200% to 150% of an FDM痴 capital requirement. (The FDM capital requirement was $5 million in August and will increase to $20 million by May 2009). The Board understood, however, that staff was continuing to study the security deposit requirement and ultimately would recommend a different approach. Staff's research focused on two areas. First, staff examined IMM margins to see how they compare with the security deposits required by Section 12. Second, staff also examined the actual leverage amounts offered by individual FDMs. Current IMM margins are substantially higher than they were at the time Section 12 was adopted. As of December 24, 2008, margins for the major currencies averaged 5.6% and ranged from 3.5% to 8.2%. Margins for the other currencies traded on the IMM averaged 8.1% and ranged from 3.2% to 12.5%. As with exchange margin, the primary purpose of the security deposit is to protect the FDM from absorbing the losses of defaulting customers which, if significant enough, could affect the FDM痴 capital and put the funds of its other customers at risk. Based on our experience with FDM practices, including that most FDMs use systems that liquidate customer positions before they reach a negative balance, NFA believes that the 1% and 4% security deposit requirement amounts remain sufficient at this time to protect against financial harm to FDMs and their customers even though they are significantly lower than margin requirements for on-exchange equivalents. On the other hand, NFA is concerned that higher leverage amounts can deplete a customer痴 account balance and result in forced liquidation much faster than retail customers realize. Of 21 FDMs, eight have the exemption from collecting minimum security deposits. Of these eight, one offers leverage of 700:1, four offer leverage of 400:1, two offer leverage of 200:1, and one offers leverage of 50:1. One of the firms without the exemption also offers leverage of 50:1. A proportionately greater number of the firms that offer higher leverage have also been the subjects of NFA complaints, while neither of the firms that offer 50:1 leverage has ever been the subject of an NFA or CFTC enforcement action. Of the 20 FDMs, eight have been named in ten complaints issued by the Business Conduct Committee in connection with their forex business. Seven of those complaints were against five FDMs that offer more than 100:1 leverage (including two firms with two complaints each). These statistics indicate that FDMs can compete while offering leverage of 100:1 or less and that higher amounts can lead to abuses. The amendments leave the minimum security deposit amount at 1% and 4% and eliminate the exemption. Under the amendments, no FDM would be allowed to offer more than 100:1 leverage on the major currencies or more than 25:1 leverage on other currencies. This would bring the operation of the forex requirement more in line with on-exchange margins, which are not affected by the firm痴 capitalization, while the required amounts would still allow FDMs to offer significantly higher leverage than is currently available for IMM contracts. NFA's FCM Advisory Committee supported these amendments. NFA also sent the amendments to the FDMs for their comments and received eight responses. One FDM with a large customer base fully supported this proposal, noting that it uses 50:1 leverage for the major currencies and has resisted customer requests for higher leverage because these levels force liquidation too quickly and frequently to be in a customers best interests. Another FDM supported eliminating the exemption but suggested that the requirement be changed to allow FDMs to offer 200:1 leverage in order to compete internationally. Five other letters also claimed that restricting them to 100:1 leverage would put them at a competitive disadvantage internationally. While these letters opposed the proposal, several of them stated that the international average. is 200:1 and this level would be an acceptable compromise. The other FDM opposed the proposal because it limits an FDM痴 ability to use increased leverage as an incentive to place close-in stop orders. (This firm offers as much as 700:1 leverage.) Commenters proposed several other alternatives besides increasing the allowable leverage to 200:1. One suggested providing exemptions for FDMs with effective risk management systems. Another commenter whose preferred result is to increase the leverage to 200:1 proposed, alternatively, that the rule only apply to U.S. customers. The ability to make these distinctions, however, may be problematic. since one commenter stated that even the disparity between the allowable leverage for major and minor currencies creates programming inefficiencies. Finally, three letters took issue with comparing OTC security deposits with exchange margins. These letters suggested three factors that give FDMs more control over the risk in customer transactions than FCMs have over on-exchange transactions: FDM systems generally automatically liquidate positions before the account goes into deficit; the OTC forex markets operate continuously, with no gap between closing prices and the next day痴 opening prices; and market-making gives firms more control over After reviewing the comments, NFA believes that the amendments are the best way to address NFA痴 customer protection concerns with certain FDMs use of leverage. As noted above, the amendments already take the difference between on-exchange and off-exchange markets into account and allow higher leverage for OTC trades than is currently available for exchange transactions. Regarding the competition issue, two FDMs voluntarily use 50:1 leverage and those without exemptions manage with 100:1 leverage, indicating that firms can engage in the retail forex business and attract customers at these levels. Furthermore, the FDM that uses higher leverage to encourage close-in stop orders actually exemplifies one of the problems NFA is trying to address that higher leverage can deplete the account balance and result in forced liquidation much faster than customers may realize. NFA respectfully requests that the Commission review and approve the amendments to NFA Financial Requirements Section 12 and the Interpretive Notice regarding Forex Transactions.

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