Margin trading and leverage
Do you want to earn a lot of money and get rich quick? Be prepared for high risk! With leverage and margin trading, you have the opportunity to increase returns significantly if you are willing to take a higher risk.
Leverage and margin trading is to borrow money from your broker, and use these to invest. That way you can quickly build up a large fortune, but the risk also increases correspondingly.
Gearing is a term you should be familiar with first as last. Moreover, it also has many other names that mean roughly the same thing:
- leverage or gearing
- margin, margin trading
- leverage
- equity credit
But what exactly is "shifting"
Leverage, or gearing if you will, is a term for the use of debt to finance investments.
Not all online brokers allow you to shift your investments, but we have listed some current services below.
advantage of leverage is that you can invest more than what you have in equity.
To operate with leverage is a typical way many investors have become rich. Those who start with nothing and income from a regular job, have not so much money to invest in the beginning.
When shifting so you will get a lot more bang for your investment at the time you make a bargain. Similarly, one will be left with a greater loss the times you are wrong. It is therefore important to know what you are doing before you walk into a margin trading.
Leverage is thus that you know a way to borrow money from your broker, so you can finance the purchase of securities. These securities can be anything from currencies, stocks, commodities and indices.
Risk of leverage and margin trading
Leverage and margin trading is not entirely risk free. Suppose you buy a stock and then borrow half of the amount you invest by your broker. If the stock drops by only 10%, that means you with an unrealized loss on the double, ie 20%.
Conversely, it will also be great benefits to drive with gearing if you're able to make some good trades. Margin trading is perfect for those who know what you are doing. If an equity rises by 50%, it means that you double your equity.
In the above example, the gear ratios only 1:2. It is possible to shift much higher than this, so much as 1:400. Then you can quickly multiply equity by a four-digit number if you make a good bargain, but then it is also greater risk of loss.
It sounds very risky to operate with leverage, because in many cases you may be guilty of the loan amount if you lose your investment. Fortunately there is a solution to this problem.
solution then is to use an online broker that can only be guilty of your initial investment, ie the original amount you shoot in order to guarantee the loan, not the loan amount.
Here are some online brokers that offer leverage, and where you only risk losing your investment and not the entire amount invested. So you will not risk having to pay back the full amount, only the initial investment.
