I have deposited $100 in a live account…they are giving me a leaverage of 1:400…it means I can trade higher then $100…
What if I open a trade using 10000$ and suffer loss? Will I have to deposit more money to pay the loss?
Imagine you have $5,000 in your trading account, trading on 100:1 leverage gives you the power of $500,000. As leverages are determined in ratios, the leverage you have gained is 100:1. If the value of your open trade moves up to $501,000, you gain 100% of the profit, which will be $1,000. The leverage in this situation gives you the ability to earn 100 times more than the capital you put down.
Now on the other hand, consider that you have a 1:1 leverage where you have to come up with the $500,000. A 1:1 leverage means that your investment of $500,000 can too increase in value to $501,000, but you are risking your $500,000 to gain your $1,000 profit. Your profit here will only be 0.2% as well. The reason why leverage and forex trading is so popular is you are not required to have $500,000 capital to invest. A 1:1 leverage is not at all attractive when forex trading can give you 100:1 leverage.
It works the other way however…If your $500,000 trade which you opened with a $5,000 capital at 100:1 leverage dropped to $495,000, you will lose your $5000 investment. As likely as you are to earn increased profits with a 100:1 leverage, you are just as likely to lose the equivalent amount if your trading plan isn’t up to scratch.
Great analysis, jonelito. I think you should have used the figure above from the questionnaire. I guess it would have been more understanding. Thanks, anyway.
So it means that if I open an account with 5000 $ and the leverage is 100:1 and I start a trade with 500000 and loose 5000$. I loose the whole capital…what if I loose 6000$, will I have to deposit 1000$ more for the loss?
Hey there:
With 1:400 leverage, it means, your broker will give you $ 400 for every $1…So If you open a $10000 lot at a 1:400 leverage, then you have to commit $ 25 of the cash on the margin, leaving you with $ 75 to ride on, I this is taken out, the broker is gonna call on your margin: ie either deposit more funds or the trade closes automatically at a loss. No you don’t have to deposit more cash because the trade will auto close…
If the market gapped then its possible that you need to pay more than you deposit if you have a certain type of account. Most brokers how ever limit your losses to your deposit.