The leverage available in forex trading is one of main attractions of this market. Leveraged trading, or trading on margin, means that you are not required to put up the full value of the position. It allows a forex trader to control a larger position with a relatively smaller-sized account.
The high volume and liquidity of forex trading combined with fewer active instruments generates greater intra-day volatility compared to the equity markets. Typically, margin ratios for trading currencies are higher than those permitted for equities, and this is primarily attributable to the higher level of liquidity within the currency markets.
With leverage, you can increase your returns on a relatively small market movements or vice versa.
More importantly leverage allows traders to increase their buying power and utilize less capital to trade.
Traders should be aware however; that while increasing leverage increases the potential for returns, there is a corresponding increase in risk. It is therefore important for forex traders to exercise discipline to stick to his/her money management strategy.