Leverage and margin: ''what are we to each other?''

Hi guys, I thought I knew the basics of Forex but the preschool course humbled me :sweat_smile: . I pretty much understand everything except how leverage and margin affect each other. I understand what margin (and the different kinds of margin) is and as well as what leverage is but the relationship between the two doesn’t seem to stick. Through observation and countlessly playing with the calculator, all I understand is that a higher leverage means a smaller margin requirement which means I can take more trades at once. A lesser leverage means I have a bigger margin requirement meaning less trades at once( and what happens when I see a better trade but can’t take it due to insufficient margin? can you please help? i’ve read the chapter on it but it’s just not making sence.

I’m told leverage affects the amount of units you can control but i don’t understand how

The relationship between leverage and margin is just a gearing ratio between the money required to open a deal and the deal size.

Higher leverage means lower margin requirement. lower leverage means higher margin requirement relative to the same deal size.

There is nothing more to add.

Better to decide how much you are prepared to risk on a deal.

Then decide how far your stop loss will be placed away from your entry price.

Then trade an appropriate lot size so the value per pip does not exceed it should your stop loss get hit.

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Thank you. If that is all there is to it then I fully understand what leverage is. leverage is only dangerous if one does not use stop losses and/or is unclear with how much one is willing to lose.

Yes, and leverage can also be dangerous if you trade deal sizes that are too large for the size of your account.

You may only want to risk $20 but trading one lot would mean a two pip stop loss.Since the value of the pip would be $10 for this deal size.

That is not really a good idea.

However, trading one micro lot, your stop loss can be 200 pips away. Since the value of the pip will be 10 cents. Which means you are less likely to lose the $20.

I hope this makes sense.

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