BJL schreef:
Why brokers offer high leverage
By offering high leverage, the broker makes it possible for the retail trader to buy or sell more than his equity allows. In reality, this practice fuels the greed of many traders, who buy or sell too large sums in the market. But at the same time, this increases the trading volume cleared by the broker. And as the broker gets his compensation from the spread, larger trades leads to bigger spread revenue. Also, the traders usage of high leverage enhances the risk, that the trader will receive a margin call if the market moves against him.
It is worth noticing, that while professional currency dealers (banks, hedge funds) never use more than 5:1 leverage, retail clients are offered leverage up to 400:1.
Often traders (the marks) will have a profitable first trade (as manipulated by the broker) in order to increase his confidence in the broker and encourage the mark to "invest" more money. Next, due to the use of too high leverage (often combined with rate spiking) the mark will receive a margin call, telling him that he must deposit more money or his trades will be closed out. The retail FX brokers will do anything to get the mark's money deposited with them, since eventually all this money becomes theirs.