When it comes to trading, the topic of leverage should not be overlooked. However, the word “leverage meaning different things in different contexts – for example, when talking about an investment vehicle like a CFD, you refer to financial leverage. This blog post will look at three reasons why financial leverage matters in CFDs.
Three reasons why leverage matters in CFDs:
1) Leverage allows you to make the most of market movements
By using leverage, traders can magnify their gains (and losses) relative to what they put in. Let’s say that a trader puts $100 into a CFD position with an interest rate of 20%. This means that if the value rises by $20, they have earned a 20% return on their investment.
2) Leverage can help you to stay in the market for longer
Leverage also allows traders to trade with a higher amount of capital, which means that they can hold onto their positions for a longer period and ride out any fluctuations in the market. This is especially important when trading CFDs as there can be quite a bit of volatility in the markets.
3) Leverage can help you to make larger profits
Lastly, leverage can also help traders make larger profits on their investments. By using leverage, traders essentially borrow money from the broker to increase their exposure to the market. With a higher level of exposure comes the potential for greater profits (or losses).