FX stands for foreign exchange trading. In this article we’ll be exploring margin-based or leveraged trading in the foreign exchange market.
Forex Trading stands for foreign exchange trading, or FX, in short, and it refers to trading two different currencies—such as the US dollar and the euro—with the aim of taking a position from fluctuations in exchange rates.
Almost all forex trading involves leverage. Leverage allows traders to control larger positions in the market with less capital or borrowed funds. This is called trading on margin, which means you can deal with much smaller deposits than the trade's actual value.
This article explains leveraged forex trading and how to get started, tailored especially for beginners.
What is forex trading with leverage?
Leveraged forex trading is often used to indicate foreign exchange margin trading.
It refers to margin-based trading in the foreign exchange market, where traders aim to take a position from fluctuations in currency exchange rates. Put simply:
- You predict whether an exchange rate will rise or fall.
- If the rate moves in your favour after taking a position, you can make a profit.
- If the rate moves against your position, you will face a loss.
Currencies are traded in pairs, such as EUR/USD. If you expect the rate to rise, you take a long (buy) position. If you expect it to fall, you take a short (sell) position.
Leveraged forex trading profits and costs
There are two types of potential profit in leveraged forex trading and one main trading cost.
Profit Type 1: Capital gain from exchange rate movements
This refers to the profit earned from buying and selling currency pairs at different rates. For example:
If you go long on EUR/USD at 1.1000 and later close the position at 1.1100, you make a profit of 0.0100. Conversely, if you close at 1.0900, you incur a loss of 0.0100.
Profit Type 2: Financing credit/ cost involved in leveraged forex trading
Financing costs are gains or losses from interest rate differentials between two currencies. As long as you hold a position, you will either earn or pay a financing cost.
Typically, when you buy a currency with a higher interest rate and sell one with a lower rate, you may receive a financing credit. Conversely, if you hold a position where the sold currency has a higher interest rate than the one bought, you may incur a financing charge—commonly referred to as a negative swap.
While financing outcomes depend on factors such as interest rate differentials and holding periods, they also vary based on your account terms and the broker’s policies. At OANDA, financing costs are calculated based on a combination of market rates and a fixed markup, which may vary by instrument and trading conditions.
Find out how we calculate our financing costs at OANDA, so you can better understand the financing charge or financing credit and other associated potential charges when you trade with us.
Trading Cost: Spread
In leveraged forex trading, each currency pair is quoted with a bid (the price at which you can sell) and an ask (the price at which you can buy). The difference between the two is known as the spread, which effectively represents the cost of entering and exiting a trade.
While many brokers offer zero-commission trading, spreads still play a key role in overall trading costs. At OANDA, we offer competitive spreads on Forex CFDs that are continuously monitored and updated based on market conditions—helping you manage trading costs more effectively.
Explore our live and historical spreads to see how OANDA compares.
The 3 main pros of leveraged forex trading
1. You can take a position in both rising and falling markets
Leveraged forex trading allows you to take a position in both a bullish or bearish market. Unlike traditional equity investments that only profit when prices rise, leveraged forex trading allows trading opportunities in both directions.
2. Leverage allows you to start small in forex markets
Forex trading enables trading with leverage, which means you can trade amounts larger than your actual deposit.
If the minimum trade size is 10,000 units and EUR/USD is at 1.1000, you would normally need $11,000 to trade. With 10x leverage, however, you only need $1,100.
This makes forex trading accessible even with a modest starting capital.
3. Trading is available 24 hours a day (in Principle)
Leveraged forex trading is available 24 hours a day during the trading week, typically from Monday morning through to Saturday morning (Singapore time). Trading hours may adjust slightly during daylight saving time in different regions.
Thanks to the global nature of the forex market—spanning major financial centres across time zones—trading continues almost seamlessly throughout the week. That’s why it’s often referred to as a “market that never sleeps.”
At OANDA, you can take advantage of this round-the-clock access through our powerful trading platforms. Learn more about our market hours and holiday trading schedule.
The 3 key risks of leveraged forex trading
1. High leverage risk in leveraged forex trading
While leverage can magnify profits, it can also amplify losses.
Your position may be forcibly closed if your margin maintenance ratio falls below a certain level. Proper risk management, including controlling position size relative to your margin, is essential.
2. Risk from exchange and interest rate fluctuations
Adverse movements in exchange rates can result in losses, and the extent of the loss depends on the market movement and leverage used.
Fluctuations in interest rates can also affect financing costs.
3. Credit and technical risks of leveraged forex trading
When trading forex, it’s essential to consider the financial stability of the broker. If a broker—or its counterparties—faces credit issues, it could disrupt trade execution or impact your access to funds. Equally important are technical risks, such as outages or delays caused by poor internet connectivity or unreliable trading platforms, whether on your side or the broker’s.
That’s why choosing an established broker with a robust and dependable trading infrastructure is critical. At OANDA, we are committed to delivering a seamless trading experience through our "best execution" policy. This means we consistently strive to secure the best possible price for our clients by considering key factors such as speed, execution reliability, and market impact. Learn more about our pricing and execution principles in our Order Execution Policy.
Leveraged FX vs. FX CFDs: What's the difference?
So far, we've explored the attractions and risks of leveraged forex trading. But you might be wondering, "How is this different from the 'FX CFDs' that OANDA offers?"
While both are very similar in that they allow you to trade using leverage, their underlying mechanisms are different.
| Leveraged forex/ FX trading | Forex/ FX CFDs |
|---|---|
| A transaction where you actually buy and sell the currencies themselves. | A 'contract' to speculate on future exchange rate movements without ever owning the actual currencies. You only settle the 'difference' (the profit or loss) in cash. |
At OANDA, we offer our clients the opportunity to trade on the price movements of the foreign exchange market through this FX CFD structure.
In other words, the benefits of leveraged trading we've discussed—such as starting with a smaller amount of capital and the ability to take a position in both rising and falling markets—are what you will experience through our FX CFD product.
Now, let's walk through the specific steps to get started with FX CFD trading at OANDA.
How to start trading in FX CFDs?
Here is a step-by-step guide to getting started with CFDs on forex trading.
Step 1: Choose a broker
Each forex trading broker differs regarding available currency pairs, spreads, trading platforms, and services. It is important to choose a broker that is reliable and aligns with your trading objectives.
Take OANDA: we are a CFD broker regulated by the Monetary Authority of Singapore (MAS), have an award-winning platform, and are a top-rated CFD broker for client satisfaction, with a dedicated team of Client Relations Managers.
Step 2: Open an account for FX CFDs trading
Most brokers, including OANDA, allow you to open an account online. To streamline the process, prepare the necessary personal information and documents in advance.
You will receive confirmation of your account opening once you’ve completed the application and passed the verification process.
Discover our account types and the benefits and exclusive content available with our premium packages.
Step 3: Fund your trading account
After opening an account, you will receive login credentials for your trading platform.
Log in and deposit margin funds into your account to begin trading.
Step 4: Start trading
Once funds are deposited, you can start trading.
It is advisable for beginners to start with small trades to familiarise themselves with the trading platform and how margin fluctuates as positions are held.
Make sure to check out demo trading, as this can be a valuable way to gain experience that is risk-free.
Finally, investing in your trading education to learn about trading strategies is also key, so spend some time checking what resources such as articles, webinars and analysts content are available to you.
Recommended trading tips for beginners
Remembering the following key points to help prevent mistakes among beginner traders.
Understand the characteristics of currency pairs
Currency pairs in forex trading are akin to stocks in equity trading. Each pair has different levels of volatility.
Pairs with high volatility tend to be higher risk and higher return. Beginners are generally advised to start with more stable pairs like EUR/USD or USD/JPY rather than more volatile minor pairs.
Learn how to read charts of FX currencies
Chart analysis involves examining price movements to make informed trading decisions.
Start with understanding candlestick charts, then move on to technical indicators for more precise analysis.
Stay on top of the markets with our technical analysis articles.
Understand the order types available in forex CFD trading.
There are several types of orders in forex CFD trading. Choose the one that best fits your trading style and risk management strategy.
| Order Type | Description |
|---|---|
| Market Order | Executes immediately at the current price |
| Limit Order | Executes at a specified price, or better |
| Stop Order | Executes when the price reaches a set level (often for loss-cutting) |
| IFD Order | Combines a new order with a preset closing order |
| OCO Order | Places two closing orders simultaneously (one for profit-taking, one for loss-cutting) |
| IFO Order | A combination of IFD and OCO orders |
| Trailing Stop Order | Adjusts the stop price as the market moves in your favour |
To reduce potential losses, it’s essential to use risk-mitigation orders such as stop orders and IFO types.
How to start trading FX CFDs with OANDA
To open an account with OANDA, you must complete our application form and provide documents verifying your identity and residential status.
You may scan the documents listed below or take photographs of them using your smartphone, then upload the images via our secure portal.
For more information, please see below:
Try FX CFDtrading with a free demo account
A demo account allows you to experience FX CFD trading using virtual funds.
Demo accounts are a risk-free way to familiarise yourself with the trading platform and mechanics before trading with real money. Many beginners use demo accounts as a first step.
To create a demo account, please see below:
Summary: What is leveraged forex trading? A Beginner’s Guide
Forex Trading (foreign exchange margin trading) is trading one currency for another to take a position from exchange rate fluctuations.
Its key features include the ability to use leverage, allowing you to start trading with a small amount of capital, and the opportunity to earn both capital gains and interest-based income (financing cost).
Leveraged Forex trading is available 24 hours a day during the working week, offering flexibility for those with busy schedules.
