In the context of the acute crisis and the coronavirus pandemic, many of us have thought about an additional source of income. Job cuts, lower real wages, the closure of small and medium-sized enterprises, as well as the danger of another COVID-19 attack, are not all the challenges we have faced in 2020 and will still face in 2021.
That is why working remotely from your computer or mobile phone is one of the best, if not the best way out of this difficult situation. And in this case, a great number of people around the world prefer trading in financial markets: foreign exchange (Forex), cryptocurrency, securities (company stocks and stock indices) and commodity (oil, gold, silver).
So, you have decided to join this huge community of traders. Your task will be to predict the rates of the just listed assets correctly. And if in ordinary markets the basic principle of profit formation is formulated as “buy cheap, sell high”, then in financial markets you can also play on a decline, making a profit not only on the growth but also on the fall of all kinds of assets.
Many may argue that any business requires a significant investment and will undoubtedly be right. This also applies to transactions in the financial markets, regardless of whether you are playing bullish or bearish. However, what do you say if we give you a tool that will allow you to earn tens, hundreds and even thousands of times more than if you operated with the amount that you have at your disposal at the moment?
This tool is called “leverage”, and now you will learn what it means and how to use it to the maximum benefit.
Financial Multiplier of Your Profits
Usually, in order to increase the size of their business, one has to turn to investors or to the bank for a loan. The procedure is long, dreary and there are no guarantees that it will be successful. But unfortunately, only money makes money. Therefore, the thing with a credit and a bank in the real sector of the economy is the only instrument of growth. But not in the world of finance!
NordFX brokerage company offers absolutely all its clients a credit leverage, which in its essence resembles a regular loan, only you get it automatically, instantly, without any securities or collateral. You just need to open an account with this international broker. We would like to note that the leverage works on the principle of a multiplier, that is, it allows you to open a deal 10, 100 or 1000 times larger than your own funds. Moreover, it is entirely up to you to decide what leverage you use.
A simple example: you have 100 USD in your account, and you decide to buy, say, Australian dollars (AUD). The current AUD/USD rate at the time of purchase is 0,700, that is, 1 Australian dollar can be bought by paying USD 0.7 for it. And, if you did not use leverage, you could buy about 143 AUD. But, using a leverage of 1:1000, you buy exactly a thousand times more, that is, 143.000 AUD.
A day later, the AUD rate grows by 1%, to 0,707, and you decide to close the position, sell your “Aussies” and return the “Americans” to the account. If you did not use leverage, your profit would be approximately 1 USD. But in this case, it will be a thousand times more, that is, 1000 US dollars! And all this in just one day, with an initial capital of only $ 100!
is this incredible? Yes! Because this is the ideal case when you have carried out the trade in the absolutely correct direction, having perfectly determined the moment of its opening and closing.
But nothing in this world is perfect, and in reality, this is unlikely to happen. Therefore, it is definitely not worth risking all 100% of your 100 USD. So, what can you do? The answer is simple: do not be greedy and open a trade with a volume of, say, only 5% of your capital. That is, you will risk only 5 USD, but you have a chance to earn as much as 50 USD. Not bad? In our opinion, it is great!
Who Risks, Why and What
Here two logical questions arise: why should a broker provide you with such a huge loan? After all, if you risk your 5 dollars, then the broker can lose all 5000 USD, right?
Let us answer both questions in order:
- The broker charges a small commission for each of your transactions, the so-called spread. And the more transactions you make, the more successful your trade is, the more the broker will earn as a commission. So, leverage is not a gift, but an opportunity for the broker to increase its profit. With no risk at all!
- Don’t be surprised. The broker risks absolutely nothing. Because if you open an unsuccessful trade and incur losses, the broker will forcibly close it as soon as your account balance approaches zero. That is, the broker keeps theirs and your 5 USD will turn to 0. This is called Stop Out in the language of finance.
The benefits of such a scheme are obvious. Thanks to leverage, you can earn tens, hundreds and thousands of times more and faster, and the broker, accordingly, increases the volume of its commissions.
And at the same time, opening a trade with a volume of even 1,000,000 dollars (it is enough to have only 1,000 USD for this), you should not be afraid that in case of failure you will have to return this million to the broker. You risk only the amount that you have determined yourself by depositing it into your trading account. That is, only 1000 USD.
How Much Oil, Coca-Cola, Bitcoin and So on Cost
You can fully enjoy all the benefits of leverage by trading not only currencies. At NordFX, this tool is available for trading gold, silver, oil, shares of the world’s leading companies, as well as cryptocurrencies. However, it is important to understand that leverage differs depending on the type of assets traded, which is indicated in the specifications on the official NordFX website.
For example, if you are interested in the stock market, you can use the Stocks account. It provides the possibility to use leverage of 1:5, and the minimum lot allows you to purchase only one stock. Thus, if you, having only 200 USD, want to buy, for example, the shares of the Coca-Cola company, which cost 50 dollars, then using leverage you will have the opportunity to make an acquisition for 1000 USD, that is, buy as many as 20 shares of this “sweet” company. And you can form your own investment portfolio by purchasing securities of several companies at once and thereby seriously diversify risks. For example, 1 share of the automobile giant Ford costs only 9 USD. That is, in order to include it in your portfolio, you will need less than 2 USD. Agree, it is a great way to become an international investor, even with a small own capital.
As for transactions with cryptocurrency, there is a simple collateral system, which you can get acquainted with in the contract specification on the NordFX website. For example, in order to open a position with a volume of 1 bitcoin, you need only 150 USD at its market price of 18,000 USD, for a transaction with Ethereum, you will need a collateral of 15 USD (despite the fact that its current value at the time of this writing is about 500 USD), and you can get a ripple for almost nothing – the deposit is only 2 cents, despite the fact that its market price is 30 times higher.
It Is All Up to You
The end result of your trading, your earnings, depends on a number of factors: the trading strategy you choose, your discipline, your level of training, and just luck. It is easy to guess that the path to success using leverage will be clearly shorter than trying to go through it using only your own capital. But you should always keep in mind that in case of failure, the path to zeroing your capital will also be much shorter. But this risk can be leveled if you follow the rules of money management. (We have given a simple example of money management with 100 USD and 5 USD above).
In conclusion, it should be noted that leverage is a tool, the effectiveness of which depends solely on who uses it, that is, on you. However, you must agree that the opportunity to earn a thousand times more than what you can count on under normal conditions is a unique opportunity. And it has already been used by millions of traders around the world. Since 2008, more than 1.5 million accounts have been opened by clients from 190 countries at NordFX. Maybe you should take this chance to avoid missing out.