Your Buying Power
is the use of various financial instruments or borrowed
capital, such as margin, to increase the potential return of
an investment. Many traders consider leverage dangerous
because traders add bigger position sizes without actually
owning them. Nevertheless, leverage is an exceptionally good
tool that can be utilized to increase your buying power as
long as trader has a risk management plan associated with
it. Some seasoned currency trader harness leverage
effectively in currency trading. They apply small leverage
to test the market sentiment. Once the strategy works with
small position size and leverage, they then multiply
leverage quickly to maximize profit potentials.
Example: in order to trade 100,000 units of USD/JPY.
Traditionally, trader needs 100,000 US dollars or we say 1:1
leverage (trading cash). However, with 100:1 leverage,
currency trader is only required to deposit 1/100th of the
amount needed, 1,000 US dollars.