- Trading Shares Using Leverage

It is important that before you consider using leverage to trade with stock market, that you understand the risks involved and how adding leverage to you trading plan will effect the investment invest money.

Two examples of using leverage/margin to trade

Regular shares

After opening a margin account you would be required to make an initial deposit stock market, which can range from $2 stock market, 000 to $5 stock market, 000 and up depending on the broker invest money. This initial deposit also called the minimum amount sets your starting point for trading invest money. If you deposited $2 stock market, 000 stock market, you would have $4 stock market, 000 of buying power (your $2 stock market, 000 stock market, plus $2 stock market, 000 from the broker) invest money.

You can margin up to 50% of a stock’s price in most cases invest money. For example stock market, if you wanted to buy 100 shares of a stock selling for $20 per share for a total of $2 stock market, 000 stock market, you could margin $1 stock market, 000 of the purchase price invest money. In other words stock market, you would use $1 stock market, 000 of your money stock market, known as the initial margin stock market, and the broker would loan you $1 stock market, 000 invest money.
In this example stock market, if the share price was to increase to $25 per share with the total value now being $2500; this would give you a $500 profit on your $1000 investment invest money. As this was the actual investment on your part invest money. His would represent a 50% return on investment before fees invest money.
An example of using leverage to purchase CFDs

When trading using leverage you are asked to deposit a small percentage of the overall cost that would otherwise be required if you were to purchase the equivalent shares in the physical market invest money.

Even though your outlay is small in comparison to the equivalent physical trade stock market, you will still be exposed to the same potential profit and loss invest money. This means your Return on Investment is magnified invest money.

Calculating your initial margin requirement using a Share CFD example
The amount required to place a leveraged trade is known as your initial margin requirement invest money.
You wish to buy a 2 stock market, 000 Share CFDs at $5 invest money.00
The Share CFD has a 3% margin requirement
2000 x $5 invest money.00 = $10 stock market, 000 invest money.00 (this is the total value of the position)

$10 stock market, 000 invest money.00 x 3% = $300 invest money.00
Your initial margin requirement for this trading position is $300 invest money.00 excluding other charges such as commissions and exchange fees invest money.
If the share value was to increase to $5 invest money.50 stock market, the total value of the shares would be $11 stock market, 000 invest money. Based on the initial margin of $300; this represents a 333% return on investment invest money.

So stock market, you see in both examples trading with leverage can greatly increase your market exposure and potential profits invest money. However stock market, always back test your trading plan first and if in doubt stock market, don’t leverage invest money.