The Power of Leverage: How Traders Can Amplify Returns and Increase Profit Potential - CapitalStreet FX
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Leverage is a financial tool that allows traders to amplify the potential returns on their investments by borrowing additional capital. In the context of trading, leverage allows traders to control larger positions with a smaller amount of capital, which can help them magnify their profits (or losses) on trades. For example, let's say a trader wants to buy $10,000 worth of a certain stock, but only has $1,000 of capital. Without leverage, the trader would not be able to make the trade. However, if they are able to secure 1:10 leverage, they could borrow $9,000 from their broker and use their own $1,000 as collateral. This would allow the trader to control a $10,000 position, despite only having $1,000 of their own capital. If the stock goes up in value, the trader could sell it for a profit. For example, if the stock increases in value by 10%, the trader could sell it for $11,000, yielding a profit of $1,000 (less any interest owed on the borrowed capital). If the stock goes dow...