What is CFD Leverage and Margin?

forex

Then this is the right page for you! You will find all the important information on the topic of "CFD trading with leverage". With more than 8 years of experience in the financial markets, I go into the risks and opportunities and share my experience with you.

CFDs (contracts for difference) are leveraged financial products, which are backed by a leverage. The leverage can vary and can be adjusted by the broker. With leverage, you need a certain amount of security (margin) to trade a larger amount on the stock exchange - "the position is leveraged up".

Advantages of CFD Leverage & Margin Trading:

CFD trading allows you to trade larger positions in the market.
The potential profit can be higher
Trade any market with little capital

CFD Trading Leverage and Margin Example

This example is calculated with a leverage of 1:30:

The leverage multiplies your own margin up. This means you only need 1/30 capital in your account to trade a larger position x 30.

Margin 100€ x 30 leverage = 3000€ position size. CFDs allow traders to trade larger positions with smaller capital. This is necessary because some assets fluctuate by only a few percentage points during the day.

From my experience, the trading account should never be completely exhausted by the margin, because it can quickly come to a margin call. This means that the CFD broker requires a further security deposit for the positions in order to keep them open. If your trading account does not have the required margin left, the provider will force you to close the position.

Remember for CFD trading:

The leverage is set by the CFD broker and can also be adjusted as desired.
The leverage multiplies the margin (safety performance) up to the real position size.
The free margin and used margin can be seen in the trading account.
The leverage allows you to trade more capital than you actually own.

trade

Determining and calculating the correct CFD leverage

You should now know what leverage is - now it's time to determine and calculate it correctly. In principle, you do not need to calculate or determine the leverage for every position. This is completely unnecessary and only wastes time.

Most providers have a fixed leverage on the assets. It is more important to choose the right position size for your account, because the leverage makes it possible to trade larger positions, which of course have a higher risk.

Overall, this means nothing more than "a lot is possible, but it doesn't have to be anything". The trader determines in download Exness apps how he can deal with the leverage by choosing his position size. However, low leverage can automatically prevent over-leveraging of the account.

This is how the CFD leverage product works:

The picture above shows an example from the order screen of a CFD provider.

The size 0.10 corresponds to a contract value of 10,000€ in EUR/USD.
The size and the contract value varies from asset to asset.
On the right you see the margin (security deposit)
You must have this margin in the account ( 50%) for a position size of 0.10
The position size must be calculated independently by the trader.

Which CFD leverage should be used?

Many novice traders ask themselves, what leverage should be used in trading? - This question is quite easy to answer. The leverage only determines the amount of security that must be provided for a position.

In my opinion, a complete exhaustion of the leverage is far too risky and in most cases ends in a capital disaster. Leverage allows you to trade larger positions. If you trade too large positions and the market goes against you, your own capital can quickly go to 0.

You should remember these basic rules:

The higher the leverage, the smaller the margin for a large trading position (risk).
The lower the leverage, the higher the margin for a large trading position (risk).