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Leverage Trading


Introduction to school segment of leveraged trading
In this school segment we will focus on the nuances behind leveraged trading and how it can be beneficial to traders. Leverage is a tool used by professional traders where it allows them to increase their position sizing to maximise profit. It essentially permits traders to trade with more than what they have deposited into their account. When the trade is closed, the borrowed amount is returned to the exchange. This is beneficial as it can scale accounts quickly, however the downside is the risk involved. If risk is not correctly managed, traders can easily wipe out accounts due to gradations such as liquidations levels – this will be discussed later in depth.
Importance of leveraged trading
There are several other important concepts for traders to understand about leverage trading before embarking on it. These include notions such as Isolated Margin and Cross Margin. Margin is the deposit required from the trader to open any leveraged positions, weather that be long or short. Margin can also be used to maintain open positions to avoid the unwanted event of a liquidation. Isolated Margin is one method where the margin balance from the trade is devoted to one single position. This permits the management of that trade without the worry of it penetrating the whole account balance. Cross Margin on the other hand uses all the available margin in a trading account. This method allows traders to avoid liquidations because the cross margin essential means they have more funds. Think of it a servicing open positions so that it does not hit liquidation levels. The downside to Cross Margin is that the whole account margin is at risk in an event of liquidation.
Key leveraged concepts covered in this school segment
Having understood the above two key concepts, leverage trading in essence is giving the trader the influence too trade in smaller percentage of the desired position size. It is solely up to the trader on how much leverage they wish to trade with on under any circumstance. The information covered in the following pages will give a more detailed understanding of how to perform leverage trading profitably.