WHAT IS LEVERAGE AND HOW DO YOU USE IT?

CFD trading and leverage

CFD trading at IQ Option allows traders to use an additional tool called leverage. Leverage is used by traders to borrow extra funds from brokers like in mathematics.

Leverage increases the trader’s initial investment by a certain percentage but it also puts it at risk. As leverage poses serious risks for traders especially in periods of high volatility it should be used with attention and caution.


Leverage increases initial investment

How does leverage work?

So how does leverage work? Let’s study two examples. John has decided to open a CFD position and invest 100 dollars in stocks of company A expecting them to grow in price.

John uses the 1 to 1 leverage which means that his profit will increase by 1 percent if the stock price grows by 1 percent. So if his forecast is right John will gain one dollar.


John is not using leverage

Having the same amount of money 100 dollars Steven decides to use the 1 to 10 leverage. In this case, if the price grows by 1 percent Steven’s profit will increase by 10 percent and will result in ten dollars.


Leverage effect on Stephens trade

But what if the price goes in the wrong direction. In this case, the losses will multiply accordingly but you will never lose an amount larger than your original investment.


Stephen loss is limited to initial investment

Using leverage at IQ Option

On IQ Option platform leverage is located in the right menu just below the amount settings. Note that leverage may differ depending on the type of an asset and the time of a trading operation.

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