Forex trading has become incredibly popular during the past decade and the forex market is the world’s largest with approximately $3 trillion dollars traded daily. At one time currency markets were only open to large investors, central banks and large corporations. Online currency trading began in 1994 and has attracted millions of investors to this lucrative market. Forex trading has allowed adept traders to make money during the current global recession. Forex trading offers investment opportunities that equity markets cannot match.

One of the most attractive features of forex trading is the use of leverage. Forex trading is done in standard lots of 100,000 or mini lots of 10,000. To overcome initial capital needs forex brokers began to offer leveraged accounts. A leveraged account is a sort of credit offered by the forex broker and is backed up by the investor’s capital. Leverage allows the investor to control large amounts of money. Forex traders monitor exchange rates in ‘Pips’ which is the smallest variation in currency prices and can be in the second or fourth decimal place in a currency pair’s price.

As an example suppose a currency pair’s price EUR/USD moves from $1.47 to $1.48. The move equals 100 pips or $0.01 change in the exchange rate. These small movements are the reason that transactions must be carried in large amounts and the use of leverage allows these small movements to accumulate into decent profits by the use of leverage. When dealing in lots of 100,000 minute changes can mean significant profits.

Most forex brokers’ offer leveraged accounts ranging from 50:1 to 400:1. Of course higher leverage means higher risk. Most experts recommend that novice forex traders start with low leverage and increase the leverage as they become more familiar with forex trading. Using leverage should be done with caution and used intelligently. Using leverage wisely is one of the keys to success in currency markets.