Leverage is an instrument specific to CFD trading. With leverage, clients can multiply their traded volumes that would otherwise be much lower.
The leverage effect means that you trade not only with your capital but predominantly using additional debt. It is important to be aware that using leverage gives you a chance to generate much more interesting profits but also increases the risk of a substantially higher loss. Even when the situation in capital markets is relatively stable the leverage effect may quickly cause a high profit or loss.
Risk reduction and account protection
In practice, a broker informs you through a margin call that you need to provide additional capital for your position to “survive” and it is up to you whether you wish to stay in the open position or you rather close it. A margin call is a notification of a client that their account is not sufficient to maintain an open position with unfavorable development. With us, you receive the margin call at 100 percent margin so that you are able to close your position and prevent an automatic closure of the most loss-making position, which does not have to be favorable for you in all situations but it protects you against incurring a loss. If you do not resolve the situation on your own based on the margin call by closing the position or placing additional funds and the capital falls under the above-mentioned 50 percent security, a so-called close margin occurs, which means that the position will be closed automatically. If you have more than one position open the one with the largest volume will be closed.
Money and risk management tools, such as stop-loss (an order below the current market price the execution of which protects the profit generated or limits the loss) and take profit (a limit order executing your order above the current market price), can help you mitigate risks effectively.