Liability to Equity Ratio in Forex Trading: Explained

The Liabilities to Equity ratio (also known as Liabilities-to-Equity Ratio or Leverage Ratio) is a comparison of a company’s total liabilities to its shareholders’ funds and is used to measure a company’s financial leverage. This ratio is often used in the foreign exchange market to analyze the solvency of a company and assess its ability to hedge its currency exposures. A high Liabilities to Equity ratio typically indicates higher financial risk, as the company is more leveraged and, thus, has more debt for its assets. Conversely, a lower ratio means that a company has more equity and fewer liabilities, which often translates to a lower level of risk for currency traders.

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