What is leverage?

Almost everyone has heard of Archimedes “give me a fulcrum, I can pry the whole earth”, so how to use financial leverage to get the key to unlock the wealth code?

What is leverage?

Levers were first used in ancient architecture and engineering, using the principle of leverage to easily lift or move heavy objects, which made a significant contribution to early technological progress. Later, this concept was extended to the financial field, referring to the use of borrowed capital to promote investment, thereby amplifying the potential return, in simple terms, it is a smaller capital to pry the project with a larger return.

The Two Sides of Leverage

Advantages of Leveraged Investing

Increased capital utilization-It allows small investors to invest high amounts of money in the market by using less money, which greatly saves on transaction costs and improves capital utilization.

Increased profitability results-A?trader using leverage can trade $1,000 or even $10,000 worth of products with just $100, and if profitable, the profitability results will increase exponentially.

Disadvantages of Leveraged Investing

Increased Risk and Probability of Rupture - In leveraged investing, the greater the leverage used, the greater the percentage of positions in the trade. Therefore, for the same position, the greater the leverage of the account, the greater the probability of bursting the position.

Magnified Loss Ratio - In the event of a loss, the loss ratio will be magnified due to the use of leverage, and the loss in the account will be greater. Therefore, when using leverage, it is very important to manage risk and stop losses in trading.

Leverage applies in the financial markets

Investment instruments suitable for leverage mainly include futures, options, trading funds and CFDs, in addition, the financing of the stock market also belongs to a kind of leveraged trading.

Contract For Difference (CFD) is currently the most frequent and common trading mode in overseas brokerage platforms. It provides traders with a convenient and simple way of trading, without the need for complex financing to carry out two-way transactions (long, short), is a small capital investor to take advantage of the leverage of the lowest threshold of the trading mode. CFDs can be used for two-way trading in gold, foreign exchange, indices, etc. through margin without holding actual assets.