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.