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Learn how you can use leverage to gain a large exposure to a financial market with a relatively small initial outlay. Leverage can magnify your profits, but we explain that it’s important to use it with care, because it also increases your risk of loss.
|Introduction to leverage||Leverage and risk||Trading on leverage|
|What is leverage?Trading on marginHow leverage worksMagnified profits and lossesThe benefits of leverageWho uses leveraged products?||Is leverage risky?Example using leverageRisk management tools||Leveraged productsWays to trade on leverage|
A wide range of leveraged products are available to investors and businesses, covering just about every market you can conceive of. There are also numerous ways to trade these products.
Leverage is widely used, with various trading methods offering at least some degree of leverage on trades. You can choose from:
You can use a stock broker to act as an intermediary between you and your chosen investment vehicle. Brokers can be individuals or organisations and can offer a range of investment services.
You can find out more about using a stock broker in our shares module.
A futures contract is an agreement, traditionally struck on the trading floor of a futures exchange - and nowadays through electronic media - to buy or sell an asset at some time in the future at a particular, specified price.
FX (or forex, or currency) trading is speculating on the future value of various currencies when compared to each other. You trade on the relative movements of a pair of currencies, with popular choices being the euro against the dollar or sterling against the dollar.
You can find out more about using a stock broker in our forex module.
In the UK, financial spread betting is a tax-free* alternative to traditional trading, whereby you place a bet on the direction a market will take, rather than trading the market directly.
Spread betting is a leveraged product and can result in losses that exceed your initial deposit.
*Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
A CFD is an agreement to exchange the difference in value of a particular asset from the time at which the position is opened to the time at which it is closed.
CFD’s are a leveraged product and can result in losses that exceed your initial deposit.
You can find out more about CFDs and how you can trade using leverage with them in the CFD trading module.
Digital 100s are yes/no deals that enable you to speculate on the performance of a particular financial market over a designated time, with only two possible outcomes.
Options are contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a fixed price on or before a certain date.
You can use them to speculate on the performance of a particular asset, or to hedge your existing investments.