How trading used to be done without leverage.

Nowadays, it's simply impossible to imagine trading Forex or stocks without leverage.

It expands your earning potential by tens, sometimes hundreds, of times, allowing you to make money even with limited capital.

But this wasn't always the case; leverage, as we know it, only emerged after it became possible to quickly monitor exchange rates.

Before this, traders relied on a clever collateral scheme to increase their capital, allowing them to receive much less than they can now.

Here's how leverage works today:

A trader has a certain amount of money, which acts as collateral when receiving funds from a broker.

Thanks to the development of computer technology, it has become possible to control transactions in such a way as to prevent the broker from losing money; in unfavorable circumstances, the trader loses only his own money.

And the trading terminal automatically closes the position as soon as the price approaches stop out.

Therefore, brokers are not particularly limited in the amounts they can provide through leverage, because their money is reliably protected, and the commission spread increases proportionally to the amount of leverage used.

It turns out that money can be used many times.

Previously, banks didn't have the ability to quickly control stock prices, much less forcefully close traders' trades.

Therefore, things were much more complicated: a trader with $1,000 in hand would buy shares for that amount and go to the bank for a loan.

The bank would lend them approximately 70% of their market value, and the trader would buy more shares, this time for $700. Now, with $1,700 worth of shares at their disposal, they could, if they so desired, go to the bank again and get a loan using the shares they just purchased.

Over time, the price rose by 10%, meaning the investor now had $1,870 worth of shares. They would then decide to sell, agreeing to deliver the securities after a certain period of time.

Then, the trader repaid the loan to the bank (in our example, $700) and received $1,170, or 17% of the initial amount. This means the borrowed funds increased profit by 7%. Minus the bank's fees. This

is a bad scenario.

Unfortunately, stock prices don't always move as expected. In this case, shares purchased for $1,000 may be worth $900, and the bank may ask for more collateral.

Since the trader doesn't have enough securities, he can either deliver more shares or return part of the money.

A critical situation could arise if the trader borrowed money several times and was no longer able to provide the required collateral, leading to bankruptcy. This could affect both the trader and, in some cases, the bank that issued the loan.

The advent of leverage fundamentally changed the situation; brokerage firms to their clients. Initially, it was a modest 1:2 or 1:3 leverage, but gradually increased to 1:2000.