(Updated October 2021)
DEFINITION of Leveraged products
Leveraged products represent financial instruments that enable traders to gain greater exposure to the market without increasing capital investment.
WHAT IT IS IN ESSENCE
They do it by using leverage.
Any financial instrument that allows you to take a position that is worth more on the market than your initial cost, is a leveraged product. Different leveraged products work in different ways, but all expand the potential profit and loss for a trader.
Leveraged products will almost always require you to pay an initial part of the position you intend to open. This is called the margin.
The main leveraged products are:
- Forex trades
- Spread bets
- Contracts for difference (CFDs)
HOW TO USE
Leveraged Products are transparent, exceptionally efficient and are an increasingly popular modern trading instrument. Leverage products are ideal for investors wishing to benefit to an above-average extent.
At the same time, they are flexible from the dynamic trends in the capital markets. They allow investors to increase their upside potential to an above-average extent.
In the way, they are enabling them to benefit far more from an anticipated price movement in the underlying asset than they would by investing directly.
This makes it possible to exploit even relatively small exchange movements effectively.
Depending on their preferences and strategy, investors have a variety of different products at their disposal. So, there is a big choice of underlying assets, including equities, indices, currency pairs, interest rates, and commodities.
Those investing in leverage products should have a distinctly high-risk appetite and sufficient experience.
This is because the leverage works both ways.
It can multiply profit, but can also increase the impact of falling prices. Hence, the result that even the total loss of the invested capital cannot be ruled out.
Leverage products are also subject to market influences (volatility, the performance of the underlying asset, etc.) during their term, which can affect their value.