Key Takeaways🔑
| →Leverage in CFD trading can amplify both potential profits and losses. |
| →Olymp Trade offers a leverage tool that allows traders to increase their investment. |
| →Appropriate use of leverage requires careful risk management and understanding of the market. |
Contents
The leverage in CFDs trading
Olymp Trade offers a special tool, the leverage while trading the CFDs. It works in a way that the traders are borrowing additional funds from the brokers.
Thanks to the leverage the traders can invest higher amounts than they really have at hand. It is a great opportunity, though enormous risk as well. Because you do not only increase a profit but also a loss. So use it carefully and avoid the times of high volatility on the markets.
The leverage in action
I will present how the leverage works in the examples.
Our trader’s name is John. He opens a CFD transaction and puts $100 in it. He anticipates the price to rise.
He decides not to use the leverage. It means it is 1 to 1. If the stock price increases by 1 percent his profit will also grow by 1 percent. He won a trade which means he earned $1.
Another trader’s name is Stephen. He opens the very same transaction and also invests $100.
What is different, he decided to apply the leverage 1 to 10. This means that when the stock price increases by 1 percent, his profit will grow by 10 percent. He has just gained $10.
Now, what will happen if the price does not go in the expected direction? Well, the loss will be multiplied accordingly. Nevertheless, you will not lose more than your investment. In Stephen’s case, $100.
The leverage on the Olymp Trade platform
You will find the leverage in the menu on the right side of the platform, right next to the investment amount. Remember, that the leverage is not the same for every asset. It will also be different when you open a trade at a different time.
Take note also that leverage is a very powerful tool – just as it can win you many times over the initial amount, you can also lose many times over your initial amount. Use leveraging very carefully, especially if you’re a beginner.
Good luck!
Pros and Cons of Using Leverage in CFD Tradingđź‘Ťđź‘Ž
Pros:
- đź’° Greater Potential Returns: Leverage can magnify your profits if your predictions are correct.
- ⚖️ Access to Larger Markets: You can open larger positions than your capital would ordinarily permit.
- 🔄 Flexibility: Leverage can be adjusted based on your risk appetite and market conditions.
Cons:
- đź’” Magnified Losses: Leverage can also magnify losses if the market moves against your prediction.
- đź’¸ Risk of Account Depletion: Heavy losses could potentially deplete your trading account.
- 🔎 Requires Close Monitoring: Leverage positions need to be closely monitored to avoid potential heavy losses.
| Trader Scenario | Effect of Leverage |
|---|---|
| Trader uses leverage and predicts market correctly | Profit is multiplied according to the leverage used |
| Trader uses leverage and predicts market incorrectly | Loss is multiplied according to the leverage used |
Q&A on Leveraged CFD Trading🎯
- Q: What is leverage in CFD trading?
- A: Leverage is a tool that allows traders to magnify their potential profits or losses by borrowing additional funds from the broker.
- Q: How can leverage magnify profits?
- A: If a trader predicts the market movement correctly, the profit from the trade is multiplied by the leverage used.
- Q: Can losses also be magnified with leverage?
- A: Yes, if the market moves against the trader’s prediction, the losses are also multiplied by the leverage used.
- Q: How can I manage the risks associated with leverage?
- A: Leverage requires careful risk management, including setting stop loss levels, managing your capital wisely, and understanding market conditions.
- Q: Where can I find the leverage tool on Olymp Trade?
- A: The leverage tool can be found on the right side of the Olymp Trade platform, next to the investment amount.