The definition of financial leverage is very simple and does not apply only to companies. Families and individuals also turn to him from time to time. The important thing is to manage it head-first so as not to exceed the levels of indebtedness that our private or family finances allow us; that is, 30-40% of net monthly income.
Leverage is to use debt (credit money or leveraged products) to increase the capital available to invest.
We can define it as the relationship between own capital and borrowed capital. For example, a 1:2 leverage means that I invest two Euros in total for every euro of my property.
The higher the level of debt, the higher the level of leverage will be.
Thanks to this form of investment, we can maximize the profitability of an operation, since we put more capital to work. If the operation is profitable, the profit obtained grows exponentially.
1Types of leverage
Positive Financial Leverage: When the return obtained in the operation is greater than the amount of interest and commissions paid for the loan.
Negative Financial Leverage: When the yield is lower than the interest and commissions paid for the capital that they have lent us.
Neutral Financial Leverage: When the return obtained is similar or equal to the interest and commissions paid for the loaned capital.
2Leverage in Exness
The levels of leverage offered by Exness are flexible, ranging from 1:2 to 1:2000, everything depends on the equity of the client. The less money there is in the trader’s account, the higher the level of leverage offered.
In fact, Exness is one of the brokers with the highest level of leverage in the forex market and others, such as HotForex offers 1:1000 and FxPro 1:500.
However, always keep in mind that a higher level of leverage also leads to greater risk. It can multiply the gains but it can also lead to big losses.
How to calculate the leverage in your transactions? Well, Exness offers you a leverage calculator, which allows investors to efficiently calculate their leverage. You can find it on their platform.