Leverage allows you to control a large amount of an asset with a relatively small deposit. In this way you can increase your market exposure beyond what would be available from your cash balance alone. This means that both your potential profits and losses are magnified. Consequently, it’s extremely important to understand the concept of leverage before you open a trade.
Your country of residence and its official financial authority will determine the amount of leverage we are able to offer you. As well as providing full transparency and making sure you get a fair deal, we’re reliably regulated.
A leverage ratio of up to 1:500 is available, which is the limit imposed by this regulator.
Example of maximum leverage:
£100 can control £50,000-worth of a financial instrument.
With all our derivative products, you trade on margin. This means that you can open and maintain a position while holding just a small percentage of the position’s overall value on your account. For instance, let’s say that you buy £10 per point of a stock index priced at 5,500 which carries an initial margin requirement of 2%.
The value of the trade is £55,000 (£10 x 5,500).
But because you’re trading on margin, you only need to have 2% of this in your account to open this position, or £1,100.
As you are trading on margin, you are employing leverage. For instance, the market above has a 2% initial margin requirement. That means it has a leverage ratio of 500:1, where your initial margin requirement of £1,100 is giving you control over £55,000-worth of that specific stock index.
This can be very handy. For a start, your remaining funds can be used for other investments. But please be aware that if the price of the asset moves against you, whether you bought or sold when you opened your position, you will be subject to a margin call and required to add funds to your account or close out your position.
Therefore, it is always sensible to have additional funds over and above initial margin requirements to help you trade freely. You can control how much you risk on any one trade by placing stops, or even guaranteed stops where available. Please note that we operate ‘negative balance protection’ which means you can’t lose more than the balance on your account unless you choose to be categorised as a Professional Client.
But we recommend that you consider risk and money management before opening any trade with us, and always consider your trade in terms of its full value and downside potential.
When you trade with us you are trading on margin and employing leverage. Effectively we lend you the funds for your position, and because of this we charge you interest on an overnight basis for long positions. Or, depending on interest rate levels, we may pay you interest overnight on short positions. Please see our blog on Overnight Funding for a full explanation.
As you are trading on margin you can go short on a financial instrument (that is, speculating on it falling in price with a view to buying it back later at a lower level) just as easily as buying it in the hope that it will rise. This is yet another benefit of margin and leveraged trading, but please be aware of the risks associated with trading with these products.
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