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.
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.