You may see, in Forex trading there is an option trading ‘leverage’. You will see the option 1:100, 1:200 or 1:400 trading leverage for you. This is the money that is given by from your trading broker. Suppose, you are investing only $100 as your live trading capital and then use 1:500 option as your trading leverage then your money’s worth will be $5000. Actually, in this case for every one dollar your broker gives you 500 dollars.
Now the vital question is, why trading brokers give us leverage facility?
Really, it is important to know why trading leverage is given to me. First of all, you need to know what is trading spread. The trading spread is the amount of pips between the bidding price and the asking price. Whatever, you buy or sell a trading currency pair, your order executed on the ask and big prices and broker make a small profit of 1 to 3 pips (usually). So, if you invest $100 with trading leverage 1:500 of your broker, then your broker will get 100*500*3 pips.