Example: You have $2,500 to invest in a currency pair
You're feeling good about the odds, so you decide you want to use leverage to magnify your potential earnings and get another $2,500 from your broker. Now you can invest $5,000 in total.
- If your forex investment goes up in value and is now worth 10% more, a $2,500 investment (without leverage) would net you a $250 profit. A $5,000 investment (with leverage) would get you a $500 profit.
- If the forex investment goes down in value, then your losses are also magnified. If your margin account drops below a certain value, your broker may require you to put more funds into it or may close it and extract the remaining funds to cover the loss.