One of the forex market’s unique traits is its relatively small profit margins. To improve your gains, you’ll need to increase the volume you’re trading. Banks can do this fairly easily, but individuals may not have access to enough capital and can instead use leverage.
Let’s take a look at a EUR/USD example. If you wanted to purchase one lot of this pair (€100,000), you would need roughly $120,000 at the current rate. If you’re a small trader without access to these funds, you might consider getting 50x leverage (2% margin). In this case, you only need to provide $2,400 to access $120,000 in the currency market.
If the pair goes down by 240 pips ($2,400), your position will be closed, and your account will be liquidated (you lose all your funds). When leveraged, small movements in the price can lead to sudden, large changes in your profits or losses. Most brokers will allow you to increase the margin on your account and top it up as needed.