Leverage is having the ability to control a large amount of money using none or very little of your own money and borrowing the rest.
Understanding the risks involved in leveraged trading is important, as what you don’t know can hurt you. You should consider limiting your leverage to a maximum of 10:1. Trading high leverage is one of the most common errors committed by Forex traders. You can face the risk of losing funds.
For you to understand leverage better, remember that the Leverage ratio depends on the margin required by the broker. For example, if a 1% margin is required, you have 100:1 leverage.
When your leverage is 100:1, to control a $100,000 position, your broker will set aside $1,000 from your account. You’re now controlling $100,000 with $1,000 only. With a small price movement, you can lose a considerable amount of money.
Display of the capital ratio towards the leverage, in other words the risk-to-capital ratio