What is foreign exchange leverage effect_Grand Master Glory Limited

What is foreign exchange leverage effect

2023-06-20

The leverage effect is the original mechanism of futures trading, that is, the margin system. The leverage effect can not only enlarge the transaction amount paid by investors, but also increase the profits obtained by investors in a leverage ratio, and at the same time, the risks borne by investors will also increase exponentially.

什么是外汇杠杆效应

Leveraged foreign exchange trading is a highly dangerous money game that is quite common in China, especially in the legal gray area of foreign exchange trading. In leveraged foreign exchange trading, traders only need to pay a margin of 1% to 10%, and they can trade 10 times to 100 times the amount. What's more, the margin is as low as 0.5%, and the transaction is as high as 200 times the amount. Because leveraged foreign exchange trading has very low capital requirements for investors, positions can be held indefinitely; coupled with flexible trading methods, it has attracted many investors. Due to the time difference between the Asian market, the European market, and the American market, it has become a global foreign exchange market that operates continuously 24 hours a day. No matter where the investor is, he can participate in any market and buy or sell at any time. The foreign exchange market is a market without time and space barriers.

Leveraged foreign exchange trading seems to have a small cost and a large profit, but it is actually a high-risk financial leveraged trading tool. Since traders only need to pay a small percentage of margin, the normal fluctuations of foreign exchange prices are magnified several times or even dozens of times, and the returns and losses brought about by this high risk are astonishing. On the other hand, the daily turnover of the international foreign exchange market can reach more than 1 trillion US dollars, and many international financial institutions and funds participate in it. The economic policies of various countries change at any time, and various emergencies occur from time to time, which may cause large fluctuations in exchange rates. Large institutions employ a large number of human resources, obtain first-hand information from various channels, and the investment team uses the analysis results in real time to buy and sell for profit.

Although the amount of margin for leveraged foreign exchange trading is small, the actual funds used are huge, and the daily fluctuation of foreign exchange prices is very large. If investors make mistakes in judging the foreign exchange trend, they will easily be wiped out. Once encountering unexpected market conditions and failing to take timely measures, not only the principal will be lost, but the difference may also be added. Investors must not take it lightly. When deciding on leverage, they must understand the risks involved.

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