Polish authorities Allows Leverage As High As 1100

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Polish Authorities Launch New Effort to Block Unauthorized Forex Brokers

Internet providers will play a key role in restricting access to unauthorized sites.

Poland is taking some proactive measures to limit access to the market for unauthorized forex brokers. Marek Chrzanowski, the Chairman of the Polish Financial Supervision Commission, shared with the ministry of finance a draft of the Act on Financial Market Supervision, which was prepared by the Polish Financial Supervision Authority (KNF).

The regulator has identified increasing risks for retail clients in Poland, stemming from companies that are not regulated in the country. Such providers have been ruthlessly targeting clients in the country without adhering to ethical and regulatory standards.

The KNF will be granted the power to prevent the provision of financial services by such companies. The watchdog will be empowered to regularly update and maintain a list of unregulated companies that are targeting Polish clients and ban their access to the market via internet service providers.

Tackling an old problem

A number of countries in and outside of the European Union have been targeted by unauthorized brokers for years. Such companies use aggressive hot sales tactics and numerous schemes to attract clients.

The KNF appears to be the first to actively engage in filtering traffic from such unregulated websites to protect retail clients in the country.

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After the completion of an inspection entitled “Protection of unprofessional participants in the foreign exchange market”, the financial supervision authorities in Poland identified significant gaps in the existing framework. A couple of years ago, the KNF was the first European regulator to officially introduce a cap on leverage, at 1:100.

Since then, the main problem for retail clients in the country have been entities that are not regulated by nor based in Poland. Such companies are typically based offshore and very difficult to trace.

Criminalization and fines

Unregulated brokers will be identified by the KNF and their names will be publicized in a public alert list. The list will include internet domain names that are used by the unauthorized entities to provide financial services. The KNF will then proceed to enter the domain name into the restricted domain register.

Subsequently, internet service providers in Poland will block access to the domains. The country has already been using similar measures to ban betting and gambling sites.

Current laws allow Polish authorities to fine companies that operate unlawfully up to PLN 5 million ($1.26 million). The KNF is proposing to double the maximum fine and criminalize such activities.

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High Leverage – Low Margin

We provide excellent margin trading conditions for all types of accounts. You can enjoy the maximum leverage of 1/1000 both on our Standard accounts and ECN accounts.

You can begin to trade with a leverage ratio of 1:1, though we do not recommend it. A leverage ratio is just a credit ratio. A margin call may occur quickly even though you have sufficient funds on your account.

Your account has a leverage ratio of 1:100. If you open a position for 100,000 EUR/USD at the rate of 1.40, your margin will be 100,000 x 1.40 / 100 = 1400.

If you have made a trading error and the price starts to go against you, your equity will start to approach 0 and your position will be closed when your equity reaches the following amount:

X = Stop-Out level x Margin = 0.4 (40%) x 1400 = 560

That is, the system will automatically close your positions when your equity reaches $560 in this case, given your leverage ratio of 1:100.

If you set a lower leverage ratio on your account, such as 1:10, then the margin will be 140,000 / 10 = 14,000, and your positions will be closed when the equity reaches the following amount:

X = Stop-Out Level x Margin = 0.4 (40%) x 14000 = 5600

As you can see, the lower the ratio, the higher the equity amount at which your positions will be automatically closed. That means it is better to choose a higher leverage ratio, but not trade at the maximum level or open positions of large volumes. This will greatly reduce your trading risks.

We do not recommend using a real leverage ratio greater than 1:20 in trading, but the final decision is up to you. Our system allows you to have a leverage ratio up to 1:1000. The margin will be only 0.1% of the volume of opened positions.

Please keep in mind that the use of a high leverage ratio leads to very high risks. Remember that the more you can earn, the greater the risk of losing your money. Be reasonable and pay attention!

Admiral Markets Group consists of the following firms:

Admiral Markets Cyprus Ltd

Admiral Markets Pty Ltd

Admiral Markets UK Ltd

Reading time: 13 minutes

If you are a rookie trader, you may find yourself asking questions such as ‘what is leverage in Forex trading?’ and ‘how can it be useful?’ This article will provide you with answers to these types of questions, together with, a detailed overview of Forex leveraging, its advantages and disadvantages, and a list of possible applications and restrictions.

What is Leverage?

In general, leverage enables you to influence your environment in a way that multiplies the outcome of your efforts without increasing your resources.

In the world of trading, it means you can access a larger portion of the market with a smaller deposit than you would be able to via traditional investing. This gives you the advantage of getting greater returns for a small up-front investment, though it is important to note that traders can be at risk of higher losses when using leverage. In finance, it is when you borrow money, to invest and make more money due to your increased buying power. Once you return what you borrowed, you are still left with more money than if you had just invested your own capital.

Let’s look at it in more detail for the finance, Forex, and trading world.

What is Financial Leverage?

Leverage in finance pertains to the use of debt to buy assets. This is done in order to avoid using too much equity. The ratio of this debt to equity is the formula for leverage (debt/equity ratio) whereby the greater the proportion of debt, the higher the amount of leverage. If a company, investment or property is termed as “highly leveraged” it means that it has a greater proportion of debt than equity. When leveraged debt is used in such a way that the return generated is greater than the interest associated with it, then an investor is in a favourable position.

However, an excessive amount of economic leverage it is always risky, given that it is always possible to fail to repay it.

(Note that the leverage shown in Trades 2 and 3 is available for Professional clients only. A Professional client is a client who possesses the experience, knowledge and expertise to make their own investment decisions and properly assess the risks that these incur. In order to be considered to be Professional client, the client must comply with MiFID ll 2020/65/EU Annex ll requirements.)

Financial leverage is quite different from operating leverage. Operating leverage of a business entity is calculated as a sum total of the amount of fixed costs it bears, whereby the higher the amount of fixed costs, the higher the operating leverage will be. Combine the two and we get the total leverage. So, what does leveraging mean for a business? It is the use of external funds for expansion, startup or asset acquisition. Businesses can also use leveraged equity to raise funds from existing investors.

Why Use Financial Leverage?

Leverage is used for these basic purposes:

  1. To expand a firm’s or an individual’s asset base and generate returns on risk capital. This means that there is an increase in ROE and Earnings Per Share.
  2. To increase the potential of earnings.
  3. For favourable tax treatment, since in many countries, the interest expense is tax deductible. So, the net cost to the borrower is reduced.

Leveraged Equity

When the cost of capital debt is low, leveraged equity can increase returns for shareholders. When you own stock in a company that has a significant amount of debt (financial leverage), you have leveraged equity. It entails the same amount of risk as leveraged debt. Therefore, the stockholder experiences the same benefits and costs as using debt.

Trading Leverage

Trading leverage or leveraged trading allows you to control much larger amounts in a trade, with a minimal deposit in your account. Leveraged trading is also known as margin trading. You can open up a small account with a brokerage, and then essentially borrow money from the broker to open a large position. This allows traders to magnify the amount of profits earned.

Remember, however, that this also magnifies the potential losses. Stock market leverage includes trading stocks with only a small amount of trading capital. This is also seen in forex leveraging, wherein traders are allowed to open positions on currency prices larger than what they can afford with their account balance alone.

It should be remembered that leverage does not alter the profit potential of a trade; but instead, reduces the amount of equity that you use. Leveraged trading is also considered a double-edged sword, since accounts with higher leverage get affected by large price swings, increasing the chances of triggering a stop-loss. Therefore, it is essential to exercise risk management when it comes to leveraged instruments.

What is Leverage in Forex?

Financial leverage is essentially an account boost for Forex traders. With the help of forex leveraging, a trader can open orders as large as 1,000 times greater than their own capital. In other words, leverage is a way for traders to gain access to much larger volumes than they would initially be able to trade with. More and more traders are deciding to move into the FX (Forex, also known as the Foreign Exchange Market) market every day.

Trading currencies online is an exciting experience, and is accessible for many traders, and while each person will have their own reasons for trading in this market, the level of financial leverage available remains one of the most popular reasons for traders choosing to trade on the FX market.

When visiting sites that are dedicated to trading, it’s possible that you’re going to see a lot of flashy banners offering something like ” trade with 0.01 lots, ECN and 500:1 leverage”. While each of these terms may not be immediately clear to a beginner, the request to have Forex leverage explained seems to be the most common one.

Although we defined leverage earlier, let’s explore it in greater detail:

Many traders define leverage as a credit line that a broker provides to their client. This isn’t exactly true, as leverage does not have the features that are issued together with credit. First of all, when you are trading with leverage you are not expected to pay any credit back. You are simply obliged to close your position, or keep it open before it is closed by the margin call. In other words, there is no particular deadline for settling your leverage boost provided by the broker.

In addition, there is also no interest on leverage, instead, FX Swaps are usually what it takes to transfer your position overnight. However, unlike regular loans, the swap payments can also be profitable for a trader. To sum up, leverage is a tool that increases the size of the maximum position that can be opened by a trader. Now we have a better understanding of Forex trading leverage, let’s see how it works with an example.

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How Does Forex Leverage Work?

Let’s say a trader has 1,000 USD on their trading account. A regular lot of ‘1’ on MetaTrader 4 is equal to 100,000 currency units. As it is possible to trade mini and even micro lots with Admiral Markets, a deposit this size would allow a trader to open micro lots (0.01 of a single lot or 1,000 currency units) with no leverage put in place. However, as a trader would usually be looking for around 2% return per trade, it could only be equal to 20 USD.

This is why many traders decide to employ gearing, also known as financial leverage, in their trading – so that the size of the trading position and profits could be higher. Let’s assume a trader with 1,000 USD on their account balance wants to trade big and their broker is supplying a leverage of 1:500. This way a trader can open a position that is as large as 5 lots, when it is denominated in USD. In other words, 1,000 USD * 500 (the leverage), would equal a maximum size of 500,000 USD for the position. The trader can actually request their orders of 500 times the size of his deposit to be filled.

This way, if 1:500 leverage is used, a trader would be making 500 USD instead of 1 USD. It is of course important to state that a trader can lose the funds as quickly as it is possible to gain them. Now as we have understood the definition and a practical example of leverage, let’s take a more detailed look at its application, and find out what the best possible level of gearing in FX trading is. Admiral Markets offers varying leverages which are dependent on client status via Admiral Markets Pro terms.

For retail clients, leverages of up to 1:30 for currency pairs and 1:20 for indices are available. For professional clients, a maximum leverage of up to 1:500 is available for currency pairs, indices, energies and precious metals. Both retail and professional status come with their own unique benefits and trade-offs, so it’s a good idea to investigate them fully before trading. Find out today if you’re eligible for professional terms, so you can maximise your trading potential, and keep your leverage where you want it to be!

Which Leverage to Use in Forex

It is hard to determine the best level one should use, as it mainly depends on the trader’s strategy and the actual vision of upcoming market moves. As a rule of thumb, the longer you expect to keep your position open, the smaller the leverage should be. This would be logical, as long positions are usually opened when large market moves are expected. However, when you are looking for a long lasting position, you will want to avoid being ‘Stopped Out’ due to market fluctuations.

In contrast, when a trader opens a position that is expected to last for a few minutes or even seconds, they are mainly aiming to extract the maximum amount of profit within a limited time. What is the best forex leveraging in this case? Usually such a person would be aiming to employ high, or in some cases, the highest possible leverage to assure the largest profit is realised, while trading small market fluctuations.

From this we can see that the Forex leverage ratio strongly depends on the strategy that is going to be used. To give you a better overview, scalpers and breakout traders try to use as high a leverage as possible, as they usually look for quick trades. Positional traders often trade with low leverage or none at all. A desired leverage for a positional trader usually starts at 5:1 and goes up to about 20:1.

When scalping, traders tend to employ a leverage that starts at 50:1 and may go as high as 500:1. Knowing the effect of leveraging and the optimal leverage Forex trading ratio is vital for a successful trading strategy, as you never want to overtrade, but you always want to be able to squeeze the maximum out of potentially profitable trades. Usually a trader is advised to experiment with leverage within their strategy for a while, in order to find the most suitable one.

To learn more about why lower leverage is good for retail traders and what is the success rate for high vs. low leverage, watch this free webinar here:

FX Broker Offers

Unlike futures and stock brokers that offer limited leverage or none at all, the offers from FX brokers are much more attractive for traders that are aiming to enjoy the maximum gearing size. It is hard to indicate the size of the leverage that a Forex trader should look for, yet most of the Forex broker leverages available start at 100:1 and tend to be an average of 200:1. There are also many brokers that can supply 1:500 leverage.

Also, in very rare cases it is possible to open an account with a broker that supplies 1,000:1, however, there aren’t many traders who would actually want to use gearing at this level.

How to Change Forex Leverage

Once you begin trading with a certain FX broker, you may want to modify the leverage available to you. This depends on the broker. With Admiral Markets you can use an industry standardised procedure that includes authenticating to the Trader’s Room, selecting your account, and changing the leverage available. This action takes immediate effect, so be careful if you have open positions when you attempt to reduce your leverage.

Another important aspect to remember is that leverage is tied to the account deposit level, so sometimes when depositing extra funds into your account, currency trading leverage can be reduced. For example, a broker may supply a leverage of 1:500 on the deposits below 1,000 USD, and a leverage of 1:200 on the deposits between 1,000 and 5,000 USD.

Once a trader has 950 USD, and opens a 3 lot position on EURUSD, they may decide to deposit a bit more to sustain a required margin, yet when the deposit occurs, the leverage will be changed, and the position might close when the Stop Out level has been reached.

Conclusion

We hope that this article has been useful to you, and that by now you have clearly understood the nature of gearing, how to calculate Forex leverage, and how it can be equally be useful or harmful to your trading strategy. It is important to state that leveraged Forex trading is quite a risky process, and your deposit can be lost quickly if you are trading using a large leverage. Do try to avoid any leveraged or highly leveraged trading before you have gained enough experience.

Trade With Admiral Markets

If you’re feeling inspired to start trading, or this article has provided some extra insight to your existing trading knowledge, you may be pleased to know that Admiral Markets provides the ability to trade with Forex and CFDs on up to 80+ currencies, with the latest market updates and technical analysis provided for FREE! Click the banner below to open your live account today!

About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world’s most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

What is Leverage in Forex

So, Forex Leverage is a way for a trader to trade much bigger volumes than he would, using only his own limited amount of trading capital.

Nowadays, due to margin trading, each individual has access to Foreign Exchange Market which is referred to speculation on the market by credit or leverage, provided by the broker for a certain amount of capital (margin) that is required for maintaining trading positions.

But wait – there’s more to know about trading leverage .

Start earning now in giant market

How to Choose the Best Leverage Level

Which is the best leverage level? – The answer to the question is that it is hard to determine which is the right leverage level.

As it mainly depends on the trader’s trading strategy and the actual vision of upcoming market moves. That is, scalpers and breakout traders try to use high leverage, as they usually look for quick trades, but as to positional traders, they often trade with low leverage amount.

So, what leverage to use for forex trading? – just keep in mind that Forex traders should choose the level of leverage that makes them most comfortable.

IFC Markets offers leverage from 1:1 to 1:400. Usually in Forex Market 1:100 leverage level is the most optimal leverage for trading. For example, if $1000 is invested and the leverage is equal to 1:100, the total amount available for trading will equal to $100.000. More precisely saying, due to leverage traders are able to trade higher volumes. Investors having small capitals prefer trading on margin (or with leverage), since their deposit is not enough for opening sufficient trading positions.

As it was mentioned above, the most popular Leverage in Forex is 1:100.

So what’s the problem with high leverage? – Well, the high leverage, besides being attractive is very risky too. Leverage in Forex may cause really big issues to those traders that are newcomers to online trading and just want to use big leverages, expecting to make large profits, while neglecting the fact that the experienced losses are going to be huge as well.

How to Manage Leverage Risk

So, while leverage can increase the potential profits, it also has the capability to increase potential losses as well, that is why you should choose carefully the amount of leverage on your trading account. But it should be noted that though trading this way require careful risk management, many traders always trade with leverage to increase their potential returns on investment.

It is quite possible to avoid negative effects of Forex leverage on trading results. First of all, it is not rational to trade the whole balance, i.e. to open a position with the maximum trading volume.

Apart from that, Forex brokers usually provide such key risk management tools as stop-loss orders that can help traders to manage risks more effectively.

Here are the basic points to manage the leverage risks properly:

  • using trailing stops,
  • keeping positions small
  • and limiting the amount of capital for each position.

So, Forex leverage can be used successfully and profitably with proper management.

Keep in mind that the leverage is totally flexible and customizable to each trader’s needs and choices.

Now having a better understanding of Forex leverage, find out how trading leverage works with an example.

Forex Leverage Example

How does Leverage Work Account balance is $1000 with 1:100 leverage. You have decided to open a buy position with EURUSD pair with a volume of 10.000. The position is opened at price 1.0950. Stop Loss order is set at 1.0850 price. The required margin for this position is equal to €10 000 x 1/100 x 1.095 = $109.50. If you do not want to spend much time on calculating margin for all of your positions you may use our Margin Calculator. In case the market goes in different direction, your loss will equal to $100, since 1 pip value in EURUSD currency pair is $1 (for 10.000 volume), and the difference between your opened price and Stop Loss level is 100 pips. If you do not use Stop Loss order, you may lose pretty higher than $100, depending when you will close your position. Stop Loss order can be used both for Long and Short positions and its level is decided by you; that is why it is one of the best risk management tools in online trading.

How to Calculate Leverage in Forex

To measure the leverage for trading – just use the below-mentioned leverage formula.

Leverage = 1/Margin = 100/Margin Percentage

Example: If the margin is 0.02, then the margin percentage is 2%, and the leverage = 1/0.02 = 100/2 = 50.

To calculate the amount of margin used, just use our Margin Calculator.

You can read more about What is Leverage here

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