How Leverage Works in the Forex Market
| Margin Requirements and Leverage Ratios | |
|---|---|
| Margin Requirement | Leverage Ratio |
| 2% | 50:1 |
| 1% | 100:1 |
| .5% | 200:1 |
As we can see from the table above, the lower the margin requirement, the greater amount of leverage can be used on each trade. However, a broker may require higher margin requirements, depending on the particular currency being traded. For example, the exchange rate for the British pound versus Japanese yen can be quite volatile, meaning it can fluctuate wildly leading to large swings in the rate. A broker may want more money held as collateral (i.e. 5%) for more volatile currencies and during volatile trading periods.
