I need help understanding leverages

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!
:slight_smile:

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

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. :slight_smile:

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?

guys

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

http://www.forex-trading-explained.com/bwnsl1goforex.html

if you are not understand yet, take a look this video : YouTube

Its a very well explained on this website, you can try it out. Its very useful for beginners.
Me too am successful because of this…
Hope this helps dear

In forex, investors use leverage to profit from the fluctuations in exchange rates between two different countries. The leverage that is achievable in the forex market is one of the highest that investors can obtain. Leverage is a loan that is provided to an investor by the broker that is handling his or her forex account. When an investor decides to invest in the forex market, he or she must first open up a margin account with a broker. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the position the investor is trading. Standard trading is done on 100,000 units of currency, so for a trade of this size, the leverage provided is usually 50:1 or 100:1. Leverage of 200:1 is usually used for positions of $50,000 or less.

If you are a newbie, please take is slow so that you do not blow out your account in one trade.

Leverage will help us to trade in forex trading using small amount. Try to maximize leverage which has been provided by broker. Surely, use demo account first.

Leverage is simply the use of borrowed money to obtain an investment. In all cases, you stand to lose more than you have invested. In the stock market, you can trade at 2:1 leverage, which is considered very risky. You can buy twice as many shares as the money you have in your account. If you have a thousand dollars, you can borrow the rest on margin. Thus, in a one point, you can make twice as much money than if you were not leveraged. But it helps traders with little capital to obtain large investment in the market.

You are right, my friend. Leverage is the amount of money offer by your broker to clients to secure large position even when you only have little capital in your account. I think it helps a lot like you said, especially to those who do not have enough money to start trading.

Understanding effective leverage, account equity, risk management and their relationship is one of the most important aspects of trading currencies.

This article explains everything, very clearly and is an absolute must read for any new trader: Daily FX | FXCM Case Study on Equity, Risk, and Effective Leverage

Hello to the OP!

Bob5star and ForexUnlimited, among others, have put it very well, so I have nothing better to add;

I would recommend, however, that you take a look at leverage from the angle of carry trades, in

that leverage and ‘risk’ express themselves quite clearly in trading one higher-rate pair versus a

a lower-rate pair…

There is an article about this on Olesia’s FX page, although it is not her article but Kathy Lien’s:

Leveraged Carry Trade

I hope this is interesting for you…

Happy trading!

Leverage will help us to trade with small amount. If we use high leverage, required margin per order will be smaller and if we use low leverage, required margin per order will be bigger. I just use leverage 1:500.

[QUOTE=“CahCuncun;614233”]Leverage will help us to trade with small amount. If we use high leverage, required margin per order will be smaller and if we use low leverage, required margin per order will be bigger. I just use leverage 1:500 from TenkoFx.[/QUOTE]

That’s your available leverage, how often do you actually come close to using that though?
What’s your average effective leverage ratio?

One pip is 0.0001 of a mini lot or $1000 dollars trading on the forex market, or $1. So if you leverage that dollar by 50:1 one pip movement either up or down represents a gain or loss of fifty dollars. So if you stop out when you are 3 pips up on a $1000 trade you make $150 or lose $150 dollars if you were 3 pips down.
The basic thing you need to remeber when using leverage is if you trade at 50:1 you have the potential to lose 50 times the amount you traded with from your trading account.

higher leverage means the cost of each pip goes up so i make more money but i have a higher risk.

Cost of Each pip do not go up if you increase the leverage.

Cost of each pip goes up if you increase LOT size.

Do not go over 1:100 at the start. That is the suggestion. Everybody has different levels though.