The simplest definition of leverage and margin is that the extra money which any broker gives you to trade currencies is named as margin and leverage. The leverage and margin significantly increases the profit and loss chances by increasing your trading power. The leverage and margin is actually the money which you get in addition to the actual deposit you have in your account. Deep understanding of leverage and margin is a must, before you use them for trading because the use of leverage and margin also increases your risk.
Basically, the only aim of trading using margin and leverage is nothing but to magnify the chances of earning profit by taking larger trading positions then originally you can with your account deposit alone. However, the other important side of this amazing facility is that it equally increases your risk. There are chances of losing more than your initial stake.
Before you use the leverage and margin offered by the broker, you have to deposit a required percentage of the leverage and margin into your trading account. To understand what we actually want to make you understand, please go through the example below:
We suppose that you have opened your trading account Rexor Investments and there is USD 1,000 in your account as initial deposit. You want to trade USDJPY currency pair with the leverage 1:5. It means this leverage facility provided by Rexor Investments, let you invest in USDJPY currency pair 100 times of the value of initial deposit in your account i.e. USD 100,000.
Yes, with leverage 1:100, 1,000 USD in your account can be enough to trade with a value of 100,000 USD as well. Maximum leverage provided by Rexor Investments is 1:500. You just need to maintain the minimum deposit in to your account to hold this position because this minimum deposit works as the required margin for this trade.
Proper usage of the offered leverage in to your trading account is a must. You must understand that you should be careful while opening any position using increased leverage because at some point it may convert into an over-leverage position, and then you will be required to increase your deposit in to your account. This high level of leverage facility enables you making good profit from the market even with small moves. But this facility can work both ways, means you have equal chances of increasing your losses as well.