How does leverage work on Trade360's platforms?

Leverage increases your operating capacity and multiplies your investment power.

It increases your benefits, but also the risk you are exposed to.

What is Leverage?

When online derivatives trading first appeared, the most popular underlying asset was currencies, which allowed you to speculate on the relative values ​​of currency pairs.

This market, which encompasses all transactions involving currency exchange, is huge, and as a result, exchange rates vary in very small increments, typically measured in hundredths of a penny or “pips.”

In the case of the Euro-US Dollar pair, for example, the average daily change has been between 40 and 100 pips (from 0.4 to 1 cent/day, up or down) during the last 10 years.

Consequently, large amounts should be invested in a position to see noticeable changes, which far exceeds what the average retail operator has at their disposal.

As a result, Trade360 offers their clients the ability to leverage their investment.

Unfortunately, many traders who use leverage do not understand what it really is.

The term “lever”, which means “to lift with a lever,” was first used during the industrial revolution to describe increasing a field of action using a physical lever.

In 1933, the word entered the business world to refer to the expansion of a company that mortgages its assets to receive a loan.

Therefore, to understand what leverage is in the financial world, it is enough to understand that this implies mortgaging funds to invest in an instrument.

It is not necessary that there be a direct relationship between what is mortgaged and the size of the investment; in fact, Trade360 will open a position of much more value than the mortgaged assets.

However, your gains and losses are related to the investment and not to the original amount mortgaged (see definition of “Margin” below).

The level of increase is represented as the ratio between the trader’s investment (margin) and the size of the position that the Trade360 opens accordingly.

A leverage of 400: 1 means that, for every dollar invested, the open position equals $ 400; 20: 1 leverage means that for every dollar, the position size is $ 20; and so on.).

The level of increase is represented as the ratio between the trader’s investment (margin) and the size of the position that the Trade360 opens accordingly.

A leverage of 400: 1 means that, for every dollar invested, the open position equals $ 400; 20: 1 leverage means that for every dollar, the position size is $ 20; and so on.).

The level of increase is represented as the ratio between the trader’s investment (margin) and the size of the position that the Trade360 opens accordingly.

A leverage of 400: 1 means that, for every dollar invested, the open position equals $ 400; 20: 1 leverage means that for every dollar, the position size is $ 20; and so on.

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What is Margin?

When trading through Trade360, money is not deducted from your account when you open a position.

Profits are added to the balance or losses are subtracted from the balance only when the position is closed.

Meanwhile, your money will be divided into the used margin and free margin.

The used margin is the amount of your money that is mortgaged in relation to your open positions and the free margin is the money that you can still use to open new positions.

The third type of margin is the required margin., which is the amount of free margin you must have to open a specific new position.

The required margin is calculated taking into account the size of the position and its leverage and is quoted as a percentage inversely proportional to the leverage of an instrument.

Therefore, if you are opening a € 10,000 position (1 mini lot) on the EURUSD with 400: 1 leverage, you will be required to mortgage 1/400 (0.0025%) of the position size, with a required margin of € 25.

At the time the position is opened, the required margin is added to the used margin and subtracted from the free margin.

Since most positions are opened at a loss due to the Trade360’s bid / ask spread (the difference between the bid and ask rates offered), that loss (already leveraged) is also deducted from the free margin and added to the margin used.

This dynamic continues as long as the position accumulates profit or loss, but will always change with the position size leverage.

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Why Leverage can be a risk for investors?

Leverage, as we have already seen, affects both the size of the position and the subsequent profit or loss of the trader in relation to a position.

If a trader invests $ 1 in a position, a move of 100 pips in the value of the currency pair (1 cent in the case of the EURUSD pair, for example) translates into a move of $ 4 in the case of leverage of 400: 1.

When it comes to profit, clearly no problem; If we talk about losses, the trader will have lost 4 times his investment, which could be a sobering surprise considering that the minimum position of most brokers is equal to 10,000 units, or € 10,000, in the case of the EURUSD.

Now, think that with a leverage of 400: 1, the trader’s investment is equivalent to € 25 (10,000/400).

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Select an appropriate Leverage with Trade360

Until now, your broker preselected leverage based on your level of operating status.

Retail traders received leverage of between 2: 1 and 30: 1, depending on the asset class and instrument, while professional traders could get up to 400: 1, as their experience and the required resources could allow them that level risky.

Lowering the leverage involved contacting the account manager and asking him to change the leverage per account.

Now, with the technology barrier finally overcome, Trade360 can now allow traders to determine their level of leverage and risk for each and every trade separately.

Simply select the position with a single click and confirm it.

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