What is leverage and how do You use it?

CFD trading and leverage

CFD trading at IQ Option provides an additional tool called leverage to its traders. Traders can borrow extra funds from brokers by leverage just like in mathematics.

Using leverage is a bit risky especially in periods of high volatility, it should be used with attention and caution. However, it increases the initial investment of a trader by a percentage. CFD trading at IQ Option provides an additional tool called leverage to its traders. Traders can borrow extra funds from brokers by leverage just like in mathematics.

Using leverage is a bit risky especially in periods of high volatility, it should be used with attention and caution. However, it increases the initial investment of a trader by a percentage.

We can also say that leverage is a key feature of CFD trading and trader can use it as a very powerful tool. Leverage offers you with increased exposure to an underlying asset by using your deposit which is also known as margin. Also, when your margin and total exposure is compared than its result is leverage ratio.

There are many markets where you can use leverage:

Shares
Indices
Forex
Cryptocurrencies

There are many advantages of using leverage like:

You get magnified profits
Gearing opportunity
Shorting the market
24-hour dealing

***Leverage increases initial investment***

How does leverage work?

Now the question arises, how does leverage work? Let us understand with two examples, Suppose Mike open a CFD position and invest 100 dollars in the stock of a company.

Mike uses the 1 to 1 leverage that means his profit will increase by 1 per cent if the stock price grows by 1 per cent. Mike will have a profit of one dollar if his assumption is right.

Now, with the same money of 100 dollars, Paul uses 1 to 10 leverage. If the price grows by 1 per cent then Paul’s profit will increase by 10 per cent and will result in 10 dollars.

Let us consider a situation where the price goes in the wrong direction. So, in this case the loss will multiply consequently but the loss will never be greater than your original investment.

**Stephen loss is limited to initial investment**

Using leverage at IQ Option

You can find the leverage option in the right menu just below the account settings on IQ Option. Note that in many cases leverage may differ depending on the type of asset.