We want all our visitors to appreciate fully what leverage is and how it is utilized in the financial markets. So we have taken the time to explain the formula behind leverage and the application of leverage to derivatives markets. The mathematical equation of leverage, force times distance was developed by Archimedes over 2300 years ago. Possibly the most brilliant man in recorded history was quoted as saying Give me a lever long enough and a fulcrum on which to place it and I shall move the world This statement was made based on his understanding of the incredible power of leverage.

The various spot dealers and prime brokers we trade with allow us to use leverage. This leverage makes it possible to participate in the worlds largest financial markets with a small amounts of capital invested. Our big stick is in the form of 1% margin trading, where only 1% of the money being traded is required to place the trade. Here is an example of how to use that stick.

Lets suppose that we think there is reason to buy gold. We know we can buy gold using a forex dealer or ECN which streams prices from banks and other traders or from a bullion dealer with no leverage and at higher cost per ounce. Our choice is to either to buy only the amount which we can afford or to use leverage to increase the amount of gold we are buying. If we can only afford $4,000 and the current price of gold is $400 an ounce then we can only afford 10 ounces of gold. If we decide to use leverage instead and put that same $4,000 up as margin and leverage $400,000 we can purchase 1,000 ounces of gold. If the price of gold increases by $1 per ounce and we decide to sell at $401 then we would make either $10 on our 10 ounces or $1,000 on our 1,000 ounces minus trading costs. On the other hand if the price of gold decreased by $1 per ounce and we decided to sell it we would lose either $10 or $1,000 in addition to our trading costs depending on whether we chose to use leverage or not.

Now that the immense power of leverage has been revealed to you, it should be obvious that you will either make more or lose more money on the same investment if it is leveraged. The great profit potential attracts some people to margin based trading while the great risk repels others. There are certain tools and money management techniques that attempt to minimize the risk while still allowing for large returns when trading with leverage. It is the recommendation of this firm that you use all of them at your disposal when you trade on margin. Doing so allows you to perform margin based trading while protecting your bottom line as much as possible.