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What is leverage in IQ Option?
CFD trading at IQ Option allows traders to use an additional tool called leverage. IQ Option leverage is used by traders to borrow extra funds from brokers like in mathematics.
Leverage increases the trader's initial investment by a certain percentage but it also puts it at risk. As leverage poses serious risks for traders especially in periods of high volatility it should be used with attention and caution.
How does leverage work?
So how does leverage work? Let's study two examples. John has decided to open a CFD position and invest 100 dollars in stocks of company A expecting them to grow in price.
John uses the 1 to 1 leverage which means that his profit will increase by 1 percent if the stock price grows by 1 percent. So if his forecast is right John will gain one dollar.
Having the same amount of money 100 dollars Steven decides to use the 1 to 10 leverage. In this case, if the price grows by 1 percent Steven's profit will increase by 10 percent and will result in ten dollars.
But what if the price goes in the wrong direction. In this case, the losses will multiply accordingly but you will never lose an amount larger than your original investment.
Using leverage at IQ Option
On the IQ Option platform leverage is located in the right menu just below the amount settings. Note that leverage may differ depending on the type of an asset and the time of a trading operation. It is important to know that it is still possible to trade on IQ Option without leverage.
Does binary option have leverage?
Both binary and digital options are financial instruments that are fundamentally different in their design. In options, you decide which direction of a particular market you are betting on and you choose the value of the trade. This value only refers to your risk and together with the payout rate defines the size of the premium if your prediction turns out to be right. There is no place for IQ Option leverage. Options trades are zero-sum. Either you lose the amount or you gain the amount multiplied by the payout rate.
What is multiplier in IQ Option?
IQ Option leverage has its own special name on the platform. It is a Multiplier. This name is meant to suggest automatically what calculation the platform makes when determining the value of a position.
When opening a CFD trade with IQ Option leverage you first determine the Amount and secondly select a value for the Multiplier. The total size of your trade is Amount x Multiplier. So if you for example set the Amount to $100 and use Multiplier x100, the size of your investment will be $10000. You do not need to physically own them. This is the role of IQ Option leverage.
Remember, however, that every stick has two ends. This is also the case here. IQ Option leverage allows you to generate large profits, but if the market goes against you, the losses will be more severe the larger the Multiplier used.
It is worth getting to know this tool in detail in a demo account. Open the IQ Option platform now and see what possibilities leverage gives you. Be sure to share your observations with us in the comments below.
IQ Option wiki wishes you a pleasant trading experience.