I need help understanding leverages.

[honeb]

I dont understand leverages. i dont know which is best for me and why having too much can be risky. help please.

[bmystic]

http://www.babypips.com/school/margin_defined.html

check this Web address out and it may help you with the leverage question...

One of the rules with trading is : Don't trade no more than you can stand to lose.


Happy trading!

[honeb]

thanks. i just finish reading the defination and i realized the problem is that i am mixing up leverage ratios with margins. higher leverage means the cost of each pip goes up so i make more money but i have a higher risk. Am i getting this correct?

100:1 leverage is the same as 1% margin.
in a mini account lot size is $10 000. so for every $100 i have trade $10 000. right?

now whats the lot size for the micro account? wild guess... is it $1000? so that would be for every $10 i have i get to trade $1000 of my broker's money?

im not new to trading,shamefully. i just never took the time to understand how i was making money and lossing money. i hope im finally understanding this thing. lol

[ramrocket]

Imagine buying stocks @ $10 / share. With your $100 you can only buy 10 physical shares. In the Forex market, as a trader we have huge leverage. For example if you buy 1 contract on a standard 100K account, you control 100,000 currencies for only $250 depending on the dealer of your choice. Leverage is the tool of investors but it also carries certain risks. This is where you need to know your numbers (entry point, exit point, stop loss, target price, capital, etc) That's why before we enter into a trade, we have already calculated the risk/reward ratio.

Simply put, leverage is the ability to trade with borrowed funds. Leverage is a tool by which traders can determine the level of risk -- and thus, the potential reward -- they assume in the market. The more leverage used, the more volatile the trader's percentage return of profit or loss can be.

[honeb]

ok i think i went stupid again. can someone do an example that compares a 50:1 leverage with 100:1 and 200:1 please. im still not getting it. thanks.

[conan]

Originally Posted by honeb

ok i think i went stupid again. can someone do an example that compares a 50:1 leverage with 100:1 and 200:1 please. im still not getting it. thanks.

me too, i am still getting confused......can someone please explain?

[n_aftab]

guys

Have a read of this I think it helps explain a lot

http://www.forex-trading-explained.c...l1goforex.html