How To Change the Leverage of Your Account?

Inzamam · August 19, 2013, 6:51am

Okay, so once you open a live account with a forex broker, you have to choose your leverage right away. So what do you do when you want to change that? Say, you start out with 10:1, then after you a few months you want to tone it down to 5:1, then how should you do that? Open another account with the same broker? Or call the customer support and ask them to change it for you?
Thank you.

Oh, and can you change your account type later on?

danyrexy · August 19, 2013, 8:11am

Inzamam hello.
You don’t need to open a new account or call the broker.
Just adjust your lot size accordingly.

Inzamam · August 19, 2013, 9:54am

Thanks Danyrexy. But I don’t understand how changing the lot size can change the leverage, or the margin required. Do you mind explaining, please?

Alpari_UK · August 20, 2013, 3:13am

Hi Inzamam,

Thought I’d lend a hand here.

[B]Here’s how Leverage and Margin work in forex trading[/B]

Before you start trading, you are required to put up a percentage of the money that you borrow “in good faith”. Let’s say you want to trade the GBPUSD currency pair and the amount you want to invest in that position out of your own pocket is GBP2,000.

Your broker requires you to make a minimum deposit to hold this position. This initial deposit is your margin requirement. The value of your trade is much higher than this. When you trade with Alpari UK the value can be as much as 500 times your initial deposit. If you choose 1:10 leverage, your GBP2,000 would let you place trades up to the value of GBP20,000.

Now let’s say you want to trade 1 lot of GBPUSD with a leverage of 1:500. The equivalent of 1 lot is 100,000 units of the base currency (GBP). So in this example, the calculation is 100,000 units divided by the leverage of 500. This gives you the margin required for your trade, which is GBP200.

[B]Ensure you understand the risks[/B]

It’s important to remember that you should be careful and not over-leverage your position based on the equity in your account. Trading on margin and leverage can greatly magnify your profits, but it can also magnify your losses very quickly if the markets move against you.

[B]Your leverage check-list[/B]

[ul]
[li]Your margin requirement is the initial deposit you need to make with your broker to enter a trade.
[/li][li]Your leverage is the ratio of the total value of your positions compared to your margin requirement.
[/li][li]Leverage enables you to magnify both profits and losses.
[/li][li]If you over-leverage your position and the markets move against you, there is the risk that your broker will liquidate your positions.
[/li][/ul]

Alex

Alexander Chadwick
Alpari (UK) Representative

Inzamam · August 20, 2013, 10:19am

Thanks for explaining in details, Alex.
One other thing that needs clarification is, 1:500 is too risky for a newbie to start with, cause there’s a chance of over leveraging his position. So, going with your example, if I open a position with 1 lot, then with the above margin requirement, the broker will hold gbp 200 from my account as the used margin. But after a few trades, if I change my mind, and want to trade 1 standard lot with 1:100 leverage, what do I have to do?

Alpari_UK · August 20, 2013, 10:32am

Happy to help Inzamam!

To change your leverage, please log in to our secure online portal where you will be asked to enter your account details and confirm your new leverage.

Alex

Alexander Chadwick
Alpari (UK) Representative

Inzamam · August 21, 2013, 1:45am

Thanks a lot, Alex.

dollace · August 21, 2013, 3:39am

I think you should contact your broker’s support team for them to adjust your leverage. But some brokers can let you adjust it manually.

danyrexy · August 21, 2013, 7:57am

I can see Alpari UK has a quite easy method. However for other broker it may be quite an experience. Supposing you selected a 1:100 leverage for your standard account at the account opening time. By default, a 1:100 leverage means that your broker loans you 100 bucks for each dollar (required margin). Later on you discover that this is too high and you would like to drop it to 1:50.
1:50 is essentially half of 1:100, meaning that the broker loans you $50 for each $1. All you have to do is half the lot 1:100 lot size. Eg. If you former margin was $1000, bring this down to $500 by adjusting the lot size and selecting 0.5 instead of 1.00. Though this will maintain the leverage at 1:100, you broker will loan you $50K as opposed to the $100K on a 1.00 lot size.
Conc. A standard lot at 1:50 is equal to 0.5 lot at 1:100. Play around with the calculation and you never have to call you broker.

I hope its easier now.

Dany

Inzamam · August 22, 2013, 8:13am

danyrexy:

I can see Alpari UK has a quite easy method. However for other broker it may be quite an experience. Supposing you selected a 1:100 leverage for your standard account at the account opening time. By default, a 1:100 leverage means that your broker loans you 100 bucks for each dollar (required margin). Later on you discover that this is too high and you would like to drop it to 1:50.
1:50 is essentially half of 1:100, meaning that the broker loans you $50 for each $1. All you have to do is half the lot 1:100 lot size. Eg. If you former margin was $1000, bring this down to $500 by adjusting the lot size and selecting 0.5 instead of 1.00. Though this will maintain the leverage at 1:100, you broker will loan you $50K as opposed to the $100K on a 1.00 lot size.
Conc. A standard lot at 1:50 is equal to 0.5 lot at 1:100. Play around with the calculation and you never have to call you broker.

I hope its easier now.

Dany

Now I understand what you meant in the first reply. Thanks Dany, it’s easier to understand now.