You use margin to create leverage.
Leverage is the increased “trading power” that is available when using a margin account.
By using leverage, it allows you to trade positions LARGER than the amount of money in your trading account.
Leverage is expressed as a ratio.
In addition, leverage is the ratio between the amount of money you really have and the amount of money you can trade.
It is usually expressed with an “X:1” format.
For example, if you wanted to trade 1 standard lot of USD/JPY without margin, you would need $100,000 in your account.
But with a Margin Requirement of just 1%, you would only have to deposit $1,000 in your account.
The leverage provided for this trade would be 100:1.
Here are examples of Leverage Ratios depending on the Margin Requirement:
|Currency Pair||Margin Requirement||Leverage Ratio|