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LeverageForex trading exploits small movements in exchange rates and would not be an attractive proposition if the trader had to have the capital to actually purchase the foreign currency outright. Brokers require traders to have only a proportion of the full cost in their account. This ability to control millions of a currency while only having to provide a deposit of thousands is called leverage. It is akin to buying a house with a mortgage. If the value of the house then goes up, the percentage return on your investment (ie on the actual deposit) is much higher than if you had not borrowed. Likewise, if the value of your house goes down, the losses are much higher as a percentage of your investment. |