How does leverage work in Forex trading?
Leverage is usually specified in ratios like 10:1 or 20:1. This means that for every one unit of currency you have in your account, you get 10 (10:1) or 20 (20:1) units of trading power. The money in your account must maintain margin requirements, or you will face margin calls. For example, if your account holds 1,000 USD and your leverage is 10:1, you have USD 10,000 in trading power. If you make a trade worth $9,500 and the value of the Forex pair drops below USD 9,000, it means you are over $1,000 in the hole. This means that you don’t have sufficient funds to pay your losses. You could receive a margin call at that point. This means that your trades will be immediately closed because you do not have enough margin to secure the losses.