Benefits of using leverage
If you understand how leveraged trading works, it can be a very effective tool. Here are some of these benefits:
Exaggerated profits. You only need to invest a fraction of the value of the deal and get the same profit as traditional trading. Since profits are calculated using the total value of your trades, margin is likely to multiply your returns on successful trades - as well as your losses on unsuccessful trades.
opportunities to reduce risks. Using leverage can free up funds that can be used for other investments. The ability to increase the amount of money available for investment is called risk reduction
sold in the market. Using leveraged products to speculate on market movements allows you to take advantage of falling markets as well as rising markets - this is called selling.
24 hour trading. While trading hours vary by market, some markets are available 24/7, including major indices, forex, and cryptocurrencies.
Disadvantages of using leverageWhile CFDs and other leveraged products offer many advantages to traders, it is important to remember that your losses may exceed your deposits and to keep in mind the potential downsides when using these products. Here are some basic things to consider:
amplify losses. Margin magnifies both losses and profits, and since the initial outlay is relatively small compared to traditional trading, it is easy to forget how much risk you are taking. Therefore, you should always consider your trades in terms of total value and potential downside, and take steps to manage your risk.
Shareholders do not have privileges. When you trade with leverage, you give up the privilege of actually owning the asset. For example, the use of leveraged products may have an impact on dividend payments. Instead of taking profit, the amount will be credited to or deducted from your account, depending on whether your position is a buy or sell position.
margin coverage. This means that if the position moves against you, your provider may ask you for additional funds to keep your trade running. This is known as a margin call, and you will either need to add capital, or exit positions to reduce your overall exposure
Financing fees. When you use leverage, you are actually loaned money to open the total position at the cost of your deposit. If you want to keep your position open overnight, a small fee will be charged to cover the costs
