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How leverage can amplify returns

Leverage is a tool used by investors to increase their potential returns by borrowing money to invest. Essentially, leverage allows investors to use other people’s money to grow their own investments. This is done by using margin accounts, which allow traders to borrow funds from a broker in order to purchase assets.

The main advantage of using leverage is that it can amplify returns. For example, if an investor purchases $10,000 worth of stock with $5,000 of their own money and borrows the remaining $5,000 from their broker with a 50% margin requirement, they effectively have twice the buying power. If the stock rises 10%, the investor would make a profit of $1,000 on their initial $5,000 investment. However, because they only put up half of the capital and borrowed the rest, their return on investment would be 20%.

While this may seem like a great way to increase profits quickly, it’s important for investors to understand that leverage also amplifies losses. If the same stock falls 10%, the investor would lose $1,000 on their initial investment. However, because they borrowed half of the capital from their broker, they would actually lose 40% of their invested capital.

How leverage can amplify returns

Therefore, it’s essential for investors to carefully consider the risks involved with using leverage before deciding whether or not it’s appropriate for them. It’s also important for investors to have a solid understanding of how margin accounts work and what types of securities are eligible for margin trading in order to avoid any unexpected surprises down the line.

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Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Information on this site is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

The company does not accept clients from Turkey and United States.

Risk Warning

MiralFX LLC. offers trading on Foreign Exchange (‘Forex’ or ‘FX’) and Contracts for Difference (‘CFDs’), which are complex financial products that are traded on margin. They carry a high level of risk since leverage can work both to your advantage and disadvantage. As a result, these products may not be suitable for all investors, as loss of all invested capital may occur. You should not risk more than you are prepared to lose. Before deciding to trade, you need to ensure that you understand the risks involved and consider your investment objectives and level of experience. Seek independent advice, if necessary.

MiralFX LLC. does not issue advice, recommendations or opinions in relation to acquiring, holding or disposing of a CFD. MiralFX LLC is not a financial advisor and all services are provided on an execution-only basis. This communication is not an offer or solicitation to enter into a transaction and shall not be construed as such.

This website is not directed at any jurisdiction and is not intended for any use that would be contrary to local law or regulation.

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