Leverage and margin

Traders are commonly confronted with the option to use leverage and margin with their trades. These terms are intertwined because you use your margin to create leverage — one leads to the other. Margin means that your broker is lending you money to open positions that are several times larger than what would otherwise be possible with your available trading capital. The collateral for the loan is the cash in your margin account, and when trading on a larger timeframe, you can expect to pay interest on this loan. Short-term traders are often in positions very briefly, and therefore are less concerned with margin interest.

Trading With Leverage

Those with a margin trading account — which must be obtained via special application — can create leverage for their trades. Leverage multiplies your buying power by allowing you to pay less to open a position, making it possible to command much larger positions with a comparatively small amount of capital. With 2:1 leverage, for example, you’re able to buy CFDs at half price, meaning that you can also open a position that is valued at double the amount of funds deposited in your account. It works this way no matter how much leverage you’re using.

If you’re trading with 100:1 leverage and have $1,000 in your trading account, then you’d be able to open a position worth $100,000. Note that you do not need to open a position with all your trading capital. If a stock is trading at $100 for one share, using 100:1 leverage means that you can buy one share for just $1.00. With $1,000 and 100:1 leverage, you’d be able to open a position of 1,000 shares in the company. Always be aware that leverage has the potential to magnify your profits or losses.

If the price of the stock increases to $115, your position is worth $115,000. When you close the position, you’re returning the $100,000 to your broker, and get to keep $15,000. If you had invested without leverage, you’d have only generated $150. On the other hand if the price of the stock decreases to $85, your position is worth $85.000. When you close the position you return the 100,000 to the broker and you suffer the losses of $15,000

The Margin Call

While margin trading can magnify potential returns, trading with leverage also comes with increased risks. Brokers employ what’s known as a ‘margin call’ to alarm traders that their account has depreciated to a value calculated by Investous’s particular formula. Trades with leverage that move in the wrong direction can multiply quickly and drain your available trading capital much more rapidly.

If leveraged trading positions deplete available trading capital past a certain threshold, the platform will alert an investor about their account balance. At this point, you’ll be margin called and prompted to deposit more money to keep the position open. If you don’t satisfy the margin call with a deposit, the position will be automatically closed to prevent the account from sinking into a negative balance.

Payment methods
In order to make another deposit, you first need to verify your account.
Your file has been rejected. Please contact customer support.
I understand

Fund your account

Company Information: This website (www.investous.com/international) is operated by IOS INVESTMENTS Limited, a Belize investment firm, authorised and regulated by the International Financial Services Commission of Belize with license number IFSC/60/511/TS/19. IOS INVESTMENTS Limited is located at 5 Cork Street, Belize City, Belize.

 

According to the payment agent agreement between IOS INVESTMENTS Limited and LEVELTIME SERVICES Limited located at Kolonakiou Avenue 43, 4103 Limassol, Cyprus, LEVELTIME SERVICES Limited is acting as a payment agent providing payment services to IOS INVESTMENTS Limited.

 

Risk warning: Contracts for difference (‘CFDs’) is a complex financial product, with speculative character, the trading of which involves significant risks of loss of capital. Trading CFDs, which is a marginal product, may result in the loss of your entire balance. Remember that leverage in CFDs can work both to your advantage and disadvantage. CFDs traders do not own, or have any rights to, the underlying assets. Trading CFDs is not appropriate for all investors. Past performance does not constitute a reliable indicator of future results. Future forecasts do not constitute a reliable indicator of future performance. Before deciding to trade, you should carefully consider your investment objectives, level of experience and risk tolerance. You should not deposit more than you are prepared to lose. Please ensure you fully understand the risk associated with the product envisaged and seek independent advice, if necessary. Please read our Risk Disclosure document.

 

Regional Restrictions: IOS INVESTMENTS Limited does not offer services within the European Economic Area and Switzerland as well as in certain other jurisdictions such as the USA, British Columbia, Canada and some other regions.

 

IOS INVESTMENTS Limited does not issue advice, recommendations or opinions in relation to acquiring, holding or disposing of any financial product. IOS INVESTMENTS is not a financial adviser.