If you are familiar with currency markets and the Forex opportunities they provide, you have probably heard the term ‘leverage’ several times. Leverage is a very important part of Forex trading and it is important for would be Forex traders to understand it. Leverage can be a double edged sword leading to impressive profits but also to equally impressive losses.

Leverage is the ratio of the invested amount versus the trade’

s actual value and leverage can help the trader increase Forex opportunities while investing. Forex brokers usually provide their clients with the option to trade with borrowed capital which can greatly increase the value of whatever trades are made.

If a Forex trader is trading with a ratio of 1:100 or X100 that means that for every dollar invested the broker invests $100. If the client invests $100 they will control a trade of $10,000. Obviously this increases the trader’

s Forex opportunities but it also increases the risk involved. Slight fluctuations can cause a trader to either gain significantly or lose very quickly.

Currency fluctuations are measured in pips, which is the smallest change in currency price and could be the second or fourth decimal place of a price depending on the currency pair. This is why it is necessary to trade in large amounts using leverage and increasing the trader’

s Forex opportunities. When dealing with large amounts of currency like $100,000 (a standard lot) minute changes can produce significant profits.

It is wise to use leverage cautiously. Beginners are cautioned against using excessive leverage until a thorough knowledge of how currency markets work and how to take advantage of Forex opportunities when they occur has been achieved.

Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.

Forex Markets Volatile in 2008

2008 was an astounding year economically. The year saw the near collapse of the global banking system, stock and commodity markets ran amok, and Forex markets were extremely volatile. The US dollar ended 2008 up 7% despite the state of the US economy. Both the dollar and the Yen continue to offer investors Forex opportunities and safe havens in a time of economic turmoil.

Risk Aversion Props up Dollar

On the final day of trading in 2008 the dollar ended the year up 6.72% as risk aversion continues to prop up the dollar. The bankruptcy of Lehman Brothers, the takeover of Bear Stearns by JPMorgan Chase and Merrill Lynch by Bank of America, sent shock waved through the financial industry. The distress of the financial industry was the result of extreme risk aversion, fear, and interest rate spreads.

Pound and Euro Near Parity

Stock markets have calmed somewhat but Forex markets remain volatile. The Pound and Euro are a near parity as investors anticipated that the European Central Bank would be far slower to cut interest rates than the Bank of England. The Euro lost 4.3% against the Dollar while the Pound lost a staggering 26.5%. It remains to be seen just what Forex opportunities these currencies will offer in 2009.

Yen Strongest Currency

The Yen finished 2008 as the strongest currency but as risk appetite returns may lose some gains. Speculation that the Japanese government would intervene in currency markets turned out to be unfounded. The Yen continues to provide Forex opportunities to investors in 2009.

Dollar and US Treasuries Safe Havens

During the global financial crisis the Dollar and US Treasuries became the safe havens of choice and helped keep the dollar strong against other major currencies. What happens to the dollar in years ahead could very well be determined by what happens in 2009. The US has experienced massive job losses and consumer spending is weak. Hopefully we will see the US economy stabilize as it starts to reap the benefits of Quantitative Easing and President Barack Obama’s fiscal stimulus plan.

Forex markets have never been so volatile but savvy investors and traders will always find Forex opportunity no matter what economic conditions prevail.

Quick Forex Tip: Euro currency trading requires a lot of research and investors must keep track of economic information from the twelve member nations. The economy of just one nation can affect the euro’s exchange rate.  In 2010 political uncertainty and deficit concerns about Greece caused the euro to fall considerably in global forex markets. Euro currency trading can be exciting and very lucrative for investors who have done their homework.