CFD Leverage Definition
CFD Leverage for Beginner Traders
The definition of cfd leverage is having the means to control a large amount of money using very little of your own money and borrowing the rest - this is what makes the cfd market to attract many investors.
What does a CFDs leverage of 1 100 mean?
When Trading CFD using cfd leverage it means that as a trader you can open trade positions that are larger than if you were using only the amount of money in your cfd account without leverage.
With cfd leverage you can use your money that's in your cfd account to borrow from your cfd broker through what is known as cfds leverage. For examples if you have a cfd account with $100 dollars - you can use your $100 & borrow using the cfd leverage of 1:100, which means that you will borrow $100 from your cfd broker for every $1 in your cfd account and after cfd leverage you'll have $100*(1:100 Leverage) = $10,000.
cfd leverage is written in the forms of a ratio:
For example cfd leverage 1:100 or 1:50 or 1:10
Sometimes the cfd leverage ratio can also be written as 100:1 or 50:1 or 10:1 depending on your cfd broker.
This ratio just explains the amount of cfd leverage whether it is written 100:1 or 1:100.
Leverage of 1:100 means you have borrowed using 1:100 and increased your trading capital 100 times.
Leverage of 1:50 means you have borrowed using 1:50 & increased your trading capital 50 times.
Leverage of 1:10 means you've borrowed using 1:10 and increased your trading capital 10 times.
Example:
We shall us this cfd example to explain what cfd leverage is? If your cfd broker gives you cfd leverage of 100:1 (this is best option to choose as the maximum cfd leverage for any cfd trading account)
This means you borrow 100 dollars for every dollar you have in your CFD account.
To put in another way your broker gives you 100 dollars for every 1 dollar in your cfds account. This is what is known as leverage.
This means if you open a cfd account with $1,000 & your cfds leverage ratio is 100:1, then you will get $100 for every $1 you that you have, the total amount that you'll control is:
If for 1 dollar the broker will give you 100
Then if you have 1,000 you'll get a total of:
$1,000 * 100 = 100,000 dollars
Now you control 100,000 dollars of capital in your cfd account that you can open trades with
Most new cfd traders ask what cfd leverage is best for 100 dollars, or 500 dollars, or 1,000 dollars cfd account? - The best option to select when opening a live CFD account is always 100:1 & not 400:1.
Trading CFD with Leverage
The more cfd leverage that you use the greater the profits or losses
The less cfd trading leverage that you use the lesser the profits or losses
It is therefore better to use less cfd leverage so as to minimize the risks involved. The higher the cfd leverage used the higher the risk. This is one of the cfd leverage rules not to trade with more than 5:1 leverage.
In cfd leverage rules: It is always advisable to stay below 10:1 which is still high, most professional money managers use 2:1 in their CFD account.
To Learn & Know More about CFDs Leverage & Margin - How Do I Read the Topics Below:
CFD Leverage and Margin Tutorial
