What is the difference between currency leverage and contracts?

Leveraged trading enlarges the scale of investment and increases returns but also magnifies the risk of loss; contract trading allows speculation on prices without owning the underlying assets, but the risk is higher.

The difference between currency circle leverage and contracts

Leveraged trading

• Definition: Allows investors to borrow funds from exchanges or brokers to enlarge the size of transactions.
• Mechanism: Investors use a smaller margin as collateral to borrow funds for trading.

• Advantages:

  • Enlarge the scale of investment and increase potential returns.
  • Increase trading flexibility to gain more from price fluctuations.

• Risk:

  • magnifies the risk of loss, which may lead to the loss of all investments.
  • Interest and handling fees need to be paid.

Contract trading

• Definition: A derivatives transaction that allows investors to speculate on the price of the underlying asset without owning the underlying asset.
• Mechanism: Investors use margin as collateral to buy or sell contracts and bet on changes in the price of the underlying asset.

• Type:

  • Perpetual Contract: There is no expiration date, traders can hold the contract forever.
  • Delivery contract: There is an expiration date, and physical delivery or position closing is required after expiration.

• Advantages:

  • can be traded in both directions (long or short), suitable for different market trends.
  • Provides higher leverage and magnifies potential gains.

• Risk:

  • High leverage risk, which may lead to the loss of all investments.
  • The contract market is highly volatile and liquidation is prone to occur.

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