What is leverage and how does it work?

mahmudul01 - 2024-05-20 21:16:57

Assalamu Alaikum

How are you all I hope you are well by the infinite mercy of the Most Merciful Creator.  Today we will discuss What is leverage and how does it work?I am young and have very little experience so please excuse any mistakes.


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is the use of funds borrowed from a financial intermediary to leverage an investor's trading position beyond what is available from his cash balance.  Investors often use leverage to take advantage of relatively small price changes in currency pairs, metals and stocks.  Leverage can magnify both profits and losses. It is very risky.  It can be a lot of profit as well as a lot of loss.
Leverage or margin loan is basically the maximum number of loans your forex broker will give you on your capital. This is leverage.
An example does not help to understand this.
Suppose your balance is $50.  If you use 1;100 leverage, your broker will lend you a maximum of 100 times when you trade.  Now it is up to you how much loan you take.  So, with $10 you can trade 10x100=1000 dollars.
Everyone gets greedy because if you get a loan up to 100 times, then why not take it?  They don't want to give 1:2 loan in stock market.
But I personally don't support it.  Because it's risky.  There is a possibility of profit. But there is a possibility of huge loss.So we all should get full knowledge about this and be careful.

Today's discussion ends here.  I hope you find it interesting and able to understand.  Share your thoughts on today's topic.  Wishes and blessings to all.