How does leverage work?

Can I use retail stop lose in all time frames or there are time frames work with it than others?

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a stop loss is relative to your risk tolerance and the amount of distance in pip value from the potential committed reversal zone.

Thus one size doesn’t fit all.

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@Protais, what do you mean by retail stop loss? A stop loss can be placed based on the current trend, market moves and prices. Here the spread should be taken into consideration as well. The time frames would not have a big matter in this case as the type of order, the traded instrument and potential risk expectation are important here.

I was talking about retailed stop loss, I used to know that is a stop loss that can move as a market price move, this can allow a trader to be profitable trader, I’m not well informed?

Just reading about this at the school :slight_smile:

@Protais, haven’t heard of a retailed stop loss but I think that what you describe must be a trailing stop. And I will explain with a simple example I found here on Babypips (link for the thread with some additional explanations: Question arising from the educational part of the site ): this trailing stop is a type of stop-loss order attached to a trade that moves as price fluctuates. Let’s say that you’ve decided to short USD/JPY at 90.80, with a trailing stop of 20 pips. This means that originally, your stop loss is at 91.00. If price goes down and hits 90.50, your trailing stop would move down to 90.70. Just remember though, that your stop will STAY at this price. It will not widen if price goes against you. Going back to the example, with a trailing stop of 20 pips, if USD/JPY hits 90.50, then your stop would move to 90.70. However, if price suddenly moves up to 90.60, your stop would remain at 90.70. Your trade will remain open as long as price does not move against you by 20 pips. Once price hits your trailing stop, a stop-loss order will be triggered and your position will be closed. Hope this makes sense.

Thank you, for your help

thank you for this question and the answers given i have wondered about this and have never gotten an answer.

Leverage increase purchasing power of your money but it comes with additional risk. It all depends on the lot size of your trade, I mean your profit and your loss. Your max position size as you guessed is 25000 notional amount and pip value will be 2.5 units of base currency. The lower position size the less is potential profit but risks are controlled better.

Very true, your balance, leverage and risk are completely different. Understand all the terms used in the Forex market to ensure you know your way towards making profits and not losses. Pipsiology classes are the best for knowing basic Forex terms and how to do such calculations

I would like to correct here, leverage does not increase your equity or account balance. If you deposited $500 and get 50X leverage your balance will remain $500. Leverage will only reduce the margin required out of your account balance when you will place a trade. For example; if you place a trade of 0.01 lot on EURUSD at a price 1.13342, higher the leverage lower will be the margin required;

  1. With 50X leverage: the required margin out of your $500 balance will be,
    Current PriceTrading volume/leverage= 1.133421000/50= 22.6684
    Thus you will need 22.6684 out of your total $500 to place that trade.
  2. With 5X leverage;
    Current PriceTrading volume/leverage= 1.133421000/5= 226.684
    Thus you will need 226.684 out of your total $500 to place that trade.
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Stop loss is your level of loss tolerance. Considering that you are beginner, it would be advisable to set very low risk tolerance to lose deals. During time, you will understand better where to set your SL order, but remember to use it always when trading

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Yes this makes sense, this has given me more understanding thanks

The leavage is concerned with the normal value of a unit of the currency pair you are working with a leavage determins how much of your account balance is resserved against your open position as a kind of deposit.Remember the higher the amount the lesser the money rserved.

Leverage is borrowed money that your broker provides you to increase your ability trade. Availing leverage means that When you open a trade, you put some amount of money and the rest will be put by your broker, it depends on what kind of leverage you are using.
For example, if you choose 1:100 leverage, so for every 1 dollar you put you will get 100 from your broker.

So what do you think, is leverage useful or harmful?

You would be better off calculating the leverage on the single trade. Let’s say you deposit 1000.
You open 0.1 standard lot for a tot exposure of 10k. In this case if you haven’t other position opened you are leveraging just 10x. ( even if your broker is giving you 30x or 100x )

For risk calculation, as many already said, use your balance. Not the exposure.

If you need something I am here :smiley:

Both. It’s useful at small amounts as you can open larger positions than what your account size is. However if you get too much then the likelihood is you’ll open a trade with too large a size and then risk more of your account than you should be. This results in blown accounts.

Trading leverage is a tool that allows you to invest for a higher nominal value than the value of your resources used.
It is necessary to understand that the variations in the prices of the currency pairs are often very low, compared to other assets such as stocks. Without leverage, it would be very difficult to make a profit, even if you have consistent investment capital.

It is hard to determine the best ratio of leverage you should use, as it mainly depends on the trader’s strategy and the actual vision of upcoming market moves.