Leveraged trading is to invest several times the original amount with very little money. In order to expect to get a rate of return that fluctuates several times relative to the investment target, or lose money. Because the increase or decrease of margin (small funds) does not move according to the fluctuation ratio of the underlying assets, it is very risky.
Extended data:
For example, if an investor wants to buy N lots of euros somewhere between the euro and the dollar, if his signing multiple is 20 times, then the calculation method of the deposit he uses is:
Margin =N× contract amount per lot multiplied by or divided by opening price (then exchange rate )× 5%. Specifically, if someone wants to buy 5 lots of euros at the position of Euro/USD 1.4500, the deposit used is:
5× 100000 (EUR )×1.4500× 5% = 36250 (USD)
If the euro rises to 1.4600 against the US dollar in the next period of time, then the player's profit is:
Profit =5× 100000 (EUR )× (1.4600-1.4500) = 5000 (USD).
In terms of profit ratio, if a trader buys Euros at 1.45 with $725,000, when it rises to 1.46, he can make a profit of 5,000 yuan, that is, 0.69%, while the profit of margin trading is 5000-36250×100% = 65433.
In practice, after buying a currency, it is not necessarily profitable that day. If the position is not closed before 2 am the next day, interest income or expenditure will be calculated for the currency in its trading account, and the interest rate will be based on the international interbank offered rate (starting from 360 days).
Although the profit brought by the same fluctuation far exceeds the real transaction, high profit is undoubtedly accompanied by high risk. If the investor's entry point is slightly deviated, it may bring huge losses. Therefore, the first thing traders should consider in margin trading is risk, especially for beginners, profit is the second thing.
Baidu Encyclopedia-Leveraged Trading