How much is a pip with 1:100 levrage?

Hello,

IF you have 1000$ and you have on your account 1 to 100 levrage? How much is a pip worth?
thank you

[B]The value of one pip depends on:[/B]

(1) the pair you are trading

(2) your account currency, and

(3) the exchange rate between the quote currency in the pair you are trading and your account currency

• If you trade USD/JPY (for example) in an account denominated in USD, then the value of 1 pip would be $0.0888 per micro-lot, $0.888 per mini-lot, or $8.88 per standard lot, based on the current price of USD/JPY = 112.663

• If you trade 2 micro-lots of USD/JPY in that account, then the value of 1 pip would be $0.1776

• If the price of USD/JPY increases by 15 pips (in your 2-micro-lot position), then the dollar-value of this price move would be $2.664

Pip-values [B]do not[/B] depend on

(1) the balance in your account ($1,000), or

(2) the maximum leverage allowed in your account (100:1)

So, the question – the way you asked it – cannot be answered.

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1 Like

Hi Clint
Can you kindly explain the difference in an account using 100-1 200-1 and 400-1 leverage.The pros and cons.TIA

Hi,

Basically, there is one major [I][B]pro[/B][/I] and one major [I][B]con.[/B][/I]

[U]Pro[/U]

In almost every[B]*[/B] forex account, there is a link between maximum allowable leverage and required margin.

• In accounts that limit usable leverage to [I]100:1,[/I] required margin is generally [I]1% of the notional value[/I] of each trade.

It’s figured this way: suppose you open a 1-mini-lot position in GBP/AUD, in your account which is denominated in USD. The notional [I]amount[/I] of your position is 10,000 units of GBP/AUD, which is £10,000. The notional [I]value[/I] of your position is the USD-value of £10,000 – which is [I]$12,933[/I] at the current GBP/USD rate of 1.2933.

In order to accept this trade, your broker will require that [I]margin,[/I] equal to 1% of $12,933 be posted. In other words, your broker will “impound” $129.33 of your money, and hold it on the side, out of your reach, for the duration of this trade. That’s $129.33 of your money that you cannot (1) use to cover losses in this trade, or in any other trade that might be open at the present time, (2) use to open additional positions, or (3) withdraw from your account.

• In accounts that limit usable leverage to [I]200:1,[/I] required margin generally is [I]1/2 of 1%[/I] of the notional value – which would be $64.67 in the GBP/AUD trade in the example above.

• And in accounts that limit usable leverage to [I]400:1,[/I] required margin generally would be only [I]1/4 of 1%[/I] which would be $32.33.

Having less of your money essentially impounded [I]is to your advantage.[/I] So, from the standpoint of required margin, [I]high maximum allowable leverage is a good thing.[/I]

[U]Con[/U]

Maximum allowable leverage is a [I]limit[/I] on the leverage you can actually use. In the GBP/AUD example above, if you placed that trade in an account with a balance of $1,000, the notional value of your trade would be 12.933 times as large as your balance (the notional value of your trade Ă· the balance in your account = $12,933 Ă· $1,000 = 12.933). In other words, you would be using 12.933:1 actual leverage.

Using [I]12.933:1 actual leverage[/I] may be prudent, [I]depending on the risk taken in this trade,[/I] which would be determined by where your stop-loss was placed.

[I]But, in almost no situation, would it be prudent to actually use 400:1, or 200:1, or even 100:1 leverage.[/I]

The “con” in this analysis comes from the temptation to trade too large – which high maximum allowable leverage [I]allows[/I] you to do, if you are careless about risk or uninformed about risk.

If you understand risk, and practice good money management techniques, then you can avoid the trap of [I]actually using[/I] too much leverage – a trap that less sensible traders often fall into.

You will often hear that “Leverage is a double-edged sword.” It doesn’t have to be, for you.

If you know how to manage risk, then high maximum allowable leverage is a [B]pro,[/B] and there is no [B]con.[/B]

[B]*[/B] Note: In most accounts, Required margin = 1 Ă· Maximum allowable leverage. So, if maximum allowable leverage is 200:1, then required margin equals 1 Ă· 200 = 0.005 which equals 1/2 of 1%.

But, it’s possible for a broker to de-couple leverage and margin. That is, brokers (in some countries) can limit leverage, but require no margin on trades. It sounds crazy, but at least one broker (YouTradeFX) actually did this at one time. I don’t know whether they have continued this policy. (This is not a recommendation of that broker, by the way.)

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