[ramrocket]

Imagine buying stocks @ $10 / share. With your $100 you can only buy 10 physical shares. In the Forex market, as a trader we have huge leverage. For example if you buy 1 contract on a standard 100K account, you control 100,000 currencies for only $250 depending on the dealer of your choice. Leverage is the tool of investors but it also carries certain risks. This is where you need to know your numbers (entry point, exit point, stop loss, target price, capital, etc) That's why before we enter into a trade, we have already calculated the risk/reward ratio.

Simply put, leverage is the ability to trade with borrowed funds. Leverage is a tool by which traders can determine the level of risk -- and thus, the potential reward -- they assume in the market. The more leverage used, the more volatile the trader's percentage return of profit or loss can be.