CFD Leverage Explanation: How it works & tips to set and calculate CFD leverage!

CFDs were initially only something for insiders. Meanwhile, private investors also trade with contracts for difference. The advantage: Very high profits can be made with a CFD contract - if the prices run in the right direction. If the market develops differently, losses end up in the portfolio.
The risk is sometimes not only limited to the capital invested. If you do not want to make expensive mistakes as a trader, you must familiarize yourself with the function of CFD leverage - and what effects the leverage has on the position. Important information about CFD trading - and how to set the CFD leverage - is provided in our guide.

CFD Leverage: Important Facts at a Glance

Trading with leverage: The basics

Basically, traders today can participate in the performance of the stock market in two different ways. On the one hand, there are the direct investments.
Here, for example, investors buy shares - and hope for a price gain as well as dividend payments. And the past seems to support this claim. For example, the performance of the DAI return triangle for the DAX index is promising over many years.
On the other hand, there are financial products that are derived from other trading values. Known as derivatives, they track the performance of the underlying asset, among other things - such as CFDs (contracts for difference).
This is also where leverage comes into play. If you are a beginner and have not yet gained any experience with them - here is a brief introduction. When trading with leverage, only part of the capital needed for the opening comes from the trader. The broker lays out the remaining sum - according to the leverage ratio (leverage). Practical example leverage 10:1: Here 100 euros of the trader become 1,000 euros, which can be moved on the market.
If a security costs 10 euros, not 10 securities but 100 securities can be bought in this way. If the value rises by 1 euro per security, traders earn 100 euros through the leverage.

Ultimately, the leverage increases the profit ratio. On the other hand, the following situation can occur: The balance sheet turns out worse, the price slides - the security must be sold at a discount of 2 euros. This means a much higher loss in the books - of 200 euros.
The CFD leverage does not work only in one direction. Unfortunately, it can also happen that underlying assets do not develop as hoped. And thus there is a risk of completely destroying the invested balance. This simple CFD leverage explanation should not obscure the fact that there are a few other aspects to consider when trading on contracts for difference.

CFD Leverage Explanation: Leverage and Margin

CFD trading without leverage is perhaps much safer. In practice, however, it makes little sense. Background: Only through leverage in login exness Asia is intraday trading worthwhile.
With a CFD without leverage, price movements of only a few percentage points would not be noticeable. Let's assume a trader enters a contract for difference on EUR/USD at 1.2344 with a long position.
By the end of the trading day, the price has barely moved - closing at 1.2349 USD. The profit would be marginal with an investment of 1,000 euros. But: Due to the leverage, the yield goes significantly upwards.
In order to enter into a position in this way with a CFD broker, traders must deposit money. In this context, the margin is to be understood as a security deposit for the leverage.
How high can the margin be? With regard to the amount, a few points are crucial. On the one hand, brokers set the initial margin. This is also known as initial margin - and determines the amount of the security deposit for opening the position. In order for the broker to keep a position open, the maintenance margin must be available.