Leverage explained.

Discussion in 'For novice traders' started by Predator_, Aug 17, 2020.

  1. Predator_

    Predator_ Member

    In an ideal Forex Market, you can only open trades with Volume of At least 1.
    [​IMG]
    And to do this, you need at least 100,000 in your account.


    But as you can see, you are able to open trades with volumes greater than 1, with much less account balance, how is this possible? Well the answer is leverage…

    Note

    1 is the Standard Volume.

    A Standard Volume is Equal to 100,000.

    Simple Math

    Assuming you has an account balance of $200, and you choose a leverage of 1000:1 with your broker.

    Simple math….1000:1 leverage*200=200,000

    So with the leverage, although your actual balance is 200, your “leverage Balance” is 200,000. 200,000 is the “leverage balance” you have available to use.


    Now, as I mentioned above.


    To open a Volume of 1, you need 100,000 as your balance, but since you have a leverage amount of 200,000, you can open a volume of 2 (200,000/100,000)

    This means, if you have an account balance of $200 with a leverage of 1000:1, you can still open a volume of 2!
     
  2. liafatlouie

    liafatlouie Member

    Thanks for the thread, Sir!
    Are we spoiled for leverage? Doesn't a trader have to pay leverage if he uses it? Then how to have good money management so that our money safe?
     
  3. broforex

    broforex Member

    In my opinion, leverage is the use of borrowed funds to increase the potential return on an investment. Leverage in forex is usually displayed in a certain proportion, for example 1:25, 1:50, 1: 100, 1: 200, 1: 1000, and so on. This proportion implies how much capital (margin) is needed to get certain loan funds in trading. Therefore, the topic of leverage must be studied by anyone who wants to start forex trading.
     
  4. Predator_

    Predator_ Member

    yea you are right, but believe, stick to my definition above, its simple and easy to understand, believe me!
     
  5. broforex

    broforex Member

    High leverage is tantalizing, but it can also plunge traders because they are bad for trading emotions. By using too high a leverage, it is easy for novice traders to underestimate the risk because they "feel" they are supported by large capital to open many positions. In fact, the greater the volume and the more trading positions, the higher the risk of loss that is borne. This is what is called high leverage risk.
     
  6. Tengkorakfx

    Tengkorakfx Active Member

    Nah i don't prefer high leverage that much. Perhaps for some scalpers, this will be a good advantages. But still, a single tick could drain your balance if your leverage is too high.
     
  7. liafatlouie

    liafatlouie Member

    Is the use of leverage in trading is wise or is it actually high risk?
     
  8. broforex

    broforex Member

    With leverage, more traders can join in the forex market. In the past, the only people who could play forex were millionaires and millionaires who were able to deposit large capital, because there was no leverage facility. Now, anyone can play forex with small or large capital, as long as they can meet the margin requirements to take advantage of the appropriate leverage.
     
  9. liafatlouie

    liafatlouie Member

    How to set up money management for leveraged trades to keep your capital safe and stable?
     
  10. broforex

    broforex Member

    Here is the main role as well as the benefits of leverage. For example, by using 1: 100 leverage to make transactions with a contract size of $ 100,000, you only need to spend $ 1,000 only (which is called margin).
     
  11. DerrickAcilm

    DerrickAcilm New Member

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  12. andengireng

    andengireng Member

    Hi, Thank you for your explanation, now I understand what is leverage and the use of it, now my trading activity become smooth and I want to trading everyday, thank you.
     

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