What exactly is leverage

Leverage

Stronger levers mean more profits!

You have recently had the opportunity to use a stronger leverage with the Plus500 broker. So you have more options with less money. Your profits will increase. But there is also a downside: your losses will also increase. Therefore, it makes sense to invest a smaller amount than before.

With the broker you can trade a maximum of 30x leverage.

 

What is leverage exactly?

Levers enable the realization of quite high returns without having to make large investments or take important positions. It is the CFDs, options and other derivatives that allow leverage to be used. Imagine buying a share at a price of € 50.00. Should the price rise to € 60 within a few days, this would mean a return of 20%. That is interesting, but thanks to the leverage effect, significantly higher returns can be achieved.

 

Leverage on call options

In the case of a call option, a significantly higher return could be realized in this example. Imagine if you had decided to purchase a call option at a price of € 50 and committed to paying a premium of € 2. You would then have held the option and waited until the rate rose to € 60. Then the call option has a value of € 11 and you can sell it again. As soon as you do this, based on the investment of € 2, you have been able to realize a return of € 9. That's a 450% return. This is significantly higher than the return that you would have realized without the leverage.

 

Leverage in Forex Trading

Leverage is particularly worthwhile when trading forex. This works a little differently because of the leverage. This is a loan that you can take out for a few minutes or hours. You should make an effort not to hold onto the position overnight, as this will result in interest on your loan. With an online broker like Plus500, you have the option of using a leverage of up to 30 times. This means that with an actual investment of, for example, € 20, you can actually invest € 600.

If you invest € 20 and the price rises by 10%, it means that you get € 22 back and make a profit of 10%. Do you choose a leverage of 30x? Then you can invest € 20, - € 600, - with this. If the who rises by 10%, you get € 660 back. A win of € 60!

 

Leverage Risk

Keep in mind, however, that using leverage also comes with risks. If the price had fallen by 10%, you would only have left € 720 of the € 800. So you would have had to pay an additional € 80 to pay back your loan. If you choose to leverage leverage, make sure you have adequate reserves. Still, you can trade faster and get positive returns even with less capital.

However, as I said, there are also risks. However, when you invest in CFDs at Plus500, you can never lose more money than you invested. However, stronger levers ensure a particularly rapid increase in profits and losses. As an inexperienced shareholder, you will see that this can happen very quickly on the stock market. It therefore makes sense to only invest once you have gathered enough knowledge and know what to expect. So make sure you know what you are doing!