A question about leverage

You can use any amount of leverage you desire – up to, but not exceeding, the maximum allowable leverage offered to you by your broker.

The leverage offered to you by your broker is the maximum allowed by the government regulator (that’s the nominal formula amount), or a lower maximum dictated by your particular broker.

In the U.S., the regulator is the CFTC, and the maximum leverage allowed (for major pairs) is 50:1 – which corresponds to 2% margin, according to the formula.

Your broker can offer a lower limit than the 50:1 limit imposed by the CFTC. But, your broker cannot offer you a higher limit.

In structuring your trades, you may use whatever leverage you think is appropriate, up to the limit offered by your broker.

You can trade with NO LEVERAGE at all, if that comports with your risk tolerance and your trading plan.

If you diligently control risk (as a percentage of your trading capital), and determine your position sizes accordingly, then you will find that the leverage you actually use will be well below the limit – 50:1, or whatever the case may be. In other words, in this case, the leverage you actually use will take care of itself, and you can stop worrying about it.

The initial margin percentage required (the margin percentage in the formula you referenced) remains the same, regardless of the actual leverage you use in any particular trade. In other words, if 2% initial margin applies to the pair you are trading, it will apply to the notional amount of every trade in that pair, regardless of whether you are using 50:1 leverage, or ZERO leverage, or any leverage amount in between.

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