The ratio of investment to actual value is called “leverage”.
Using a $1,000 to
buy a Forex contract with a $100,000 value is “leveraging”
at a 1:100 ratio.
The $1,000 is all you invest and all you risk, but the gains
you can make may
be many times greater.
Obviously, buy low and sell high! The profit potential comes
from the
fluctuations (changes) in the currency exchange market.
Unlike the stock market, where share are purchased, Forex trading does not
require physical
purchase of the currencies,
but rather involves contracts
for amount and exchange rate of currency pairs.
The advantageous thing about the Forex market is that
regular daily
fluctuations – in the regular currency exchange markets,
often around 1% - are multiplied by 100! (generally offers trading ratios from
1:50 to 1:200).
You cannot lose more than your initial investment (also
called your “margin”).
The profit you may make is unlimited, but you can never lose
more than the
margin. You are strongly
advised to never risk more than you can afford to
lose.
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