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When speaking of a spread, it always means the difference between the buying and selling price. In the case of CFD spreads, this means the difference between the start and end time of an agreement. A spread therefore decides to a certain extent on the profit and loss of a CFD agreement. Therefore, it is worthwhile in advance to choose brokers with low spreads, such as XTB or FXTM, for trading.

CFD leverage explanation – what are levers and how do they work?

It does not matter whether you trade on a falling price with a short position or on a rising price with a long position: In both cases, you can use so-called levers, which allow large profits even with a small capital investment. Unfortunately, however, this also works in the opposite direction, depending on the leverage, large losses can occur. Losses occur when the price has not developed as expected. This means, for example, with a long CFD, that the price has not risen as desired, but has fallen.
The losses are particularly serious if a large leverage was previously selected. The smaller the leverage, the lower the losses. But the levers can not be used just like that. Anyone who wants to use them must deposit a kind of security deposit, known as margin. This margin goes to the respective trading partner and varies depending on the underlying asset and financial instrument. A distinction is also made between private and professional traders when it comes to leverage.

CFD Trading Explanation

Private traders are allowed to use a maximum leverage of 30, professional traders, on the other hand, can trade with significantly higher leverage. For this reason, it is possible, especially for professionals, to make large profits even with small price fluctuations. The restriction of leverage for private investors was not decided for no reason. Investors who have little capital are quickly tempted to choose a particularly high leverage in order to achieve the highest possible profit.

However, it is precisely this approach that can lead to a total loss, and it is from this that they are to be protected with this restriction. This was obtained from the European Securities and Markets Authority (ESMA)  or in Exness Thai and also includes that the margin call is excluded for private investors who live in Germany. This means an additional protection against a high indebtedness or a total loss. However, even if a lot is done by the authorities to protect investors from losses, this is no guarantee for profits.

Similarly, extensive knowledge and dealing with a CFD trading leverage explanation does not provide protection against losses. The financial market is extremely uncertain. Especially when it comes to trading rates, joy and sorrow are close together. So what general recommendation can be made to trade leverage as safely as possible?

Basically, especially for beginners, it is advisable to choose the smallest possible leverage and to take advantage of the expertise of experienced traders. Also, the fees should be considered when trading CFDs. These can also vary, depending on the leverage, and reduce the profit or increase the loss.

  •     Levers can be used when trading CFDs to achieve greater profits.
  •     In order to trade with leverage, a security deposit, the margin, must be provided.
  •     The possible size of leverage for private traders is smaller than that for professional traders.
  •     Levers work in both directions and can therefore mean big profits, but also big losses

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