Every week we provide insights into popular assets and hot questions, so you can easily learn more about the investment market in bite-sized pieces.
In this Markets in Focus we take a closer look on how trading with leverage works, which is suitable for more experienced traders.
What is trading with leverage
Leverage trading gives you the possibility to increase your potential returns (but also your losses). In simple terms, leverage allows you to multiply the amount of money in your trade.
Let’s use a an example to explain:
First a trade without leverage. Imagine you open a €100 buy position on Tesla stock. At the end of the day Tesla went up 2% in price so you’ve now got €102. A simple trade and a 2% profit.
With leverage trading, you can multiply that trade even further. Let’s say you want to leverage it by a multiple of five. You still begin with €100, but you leverage your starting capital up to €500 by borrowing money from us as your broker. If the stock rises the same 2%, your return is also multiplied by five. That €100 trade is now worth €110.
However, the opposite is also possible. In our example (without leverage), if Tesla drops by 2%, you lose €2. Bad news, but only a loss of 2%.
With CFD leverage, however, everything is multiplied by five. The 2% drop is multiplied by five to 10% and your position is now worth €90.
That is why trading with leverage is risky and you should first think carefully about whether you can afford to lose up to your entire position.
Leverage and Change
What is the maximum leverage I can trade per asset?
- 30:1 for major currency pairs;
- 20:1 for non-major currency pairs, gold and major indices;
- 10:1 for commodities other than gold and non-major equity indices;
- 5:1 for individual equities and other reference values;
- 2:1 for cryptocurrencies.
Do I need to trade with leverage?
No, in the Change App you can also trade without leverage.
We wish you a successful trading week. With or without leverage.
