BTC Wires: Leverage is a loan. The broker is loaning you money that they expect you will repay. If everything goes well, the price of your investment grows so you can sell and pay back the loan. Being levered means that you can buy more stock than you could with just all cash. And potentially make more profits. Now to the bad part. If your stock goes down, the broker still wants to get repaid. And they will give what is called a margin call. That is a demand for repayment. And if the stock drops far enough, selling all your stock will not generate enough proceeds to pay off the loan. You are then left with a debt that broker still expects for you to repay. It works good when things are moving in your direction. Not so good when they are moving against you.
Leverage provides with an opportunity to boost up your trading amount. The power of leverage is a crucial and undulating realm that has equal possibilities for both. It must be remembered that trading with high leverage simply implies involving with ore money. Though, chances of profit are high but you also have to bear with losses which can cost you heavily if things become inevitable.
Everything has its own pros and cons. So does trading on leverage! Basically leverage gives you an opportunity to boost your trade returns. However, it can also bring fatal losses in case of a wrong trade. Leverage is believed to be a double edged sword in the market. Many believe that leverage can put a trader under higher risk as the magnitude of potential losses increases on account of leverage. Traders with the high leverage get a bigger shot at making the most out of the good trade call.
Because huge leverages can easily tempt traders towards making huge proportions of profit, there is an increased risk factor on the account balance. It’s better to avoid any leveraged or high leveraged trading before you have gained enough experience. However, its not unwise to use leverage at all. In fact, it’s quite profitable if one can use it properly.