Glossar

In FX trading, leverage trading refers to the use of credit —extended by the dealer or trading platform— aimed at magnifying the notional value of a position. If a trader has a given amount of margin in deposit, he or she is allowed to speculate on a notional amount that can be many times as large. Some retail forex brokers allow traders to open accounts and, upon depositing a margin amount, they can trade in a large multiple of the margin amount. For instance, 5:1, 10:1 or 50:1. This is why leveraged trading is like a double sword: both gains and losses are amplified by the effect of leverage. Leveraged trading is a popular, but highly speculative activity that has nothing to do with FX hedging.