The reason why you struggle to understand the relationship is because THEY ARE NOT RELATED
leverage is Leverage
Volume is Volume
One gives you a Financial Advantage
The other is a Measure of how many Buy contracts exist at any time vs how many Sell contracts
THIS IS INCORRECT
you do not NEED Leverage to trade in forex
You can trade WITHOUT LEVERAGE
this is called 1:1 LEVERAGE
Meaning if you put in $1000 you can control $1000 worth of currency
let’s address WHAT IS LEVERAGE
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You should go an read this
Forex Leverage and Margin Explained - BabyPips.com
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the Dictionary Definition is …
the exertion of force by means of a lever.
use (something) to maximum advantage.
now, the first dictionary definition (even though it’s a scientific definition) can be viewed as FINANCIAL FORCE.
Leverage is when you gain a greater advantage over something by USING LESS EFFORT
in Forex it means
YOU INVEST LESS MONEY, but YOU CONTROL MORE CURRENCY
this is why 1:1 is not Leveraging
1:2 is the first level of leveraging
hence , you invest $100 but you control $200 of currency (because the broker adds the remainder on loan)
So Moving forward
if you put in $10,000 and your account leverage is 1:!00
well. ADD 2 Zero’s to the end to make it 1,000,000
and Vuola , you now control 1 Million dollars worth of currncy by using only $10,000
now if it’s 1:400 Leverage, hence 4x More than 1:100
well then, 1 Million x 4 = 4 Million
simple
HERE IS WHAT YOU NEED TO GET YOUR HEAD AROUND
LEVERAGE EXISTS because at one point some decades back, before the internet, you needed a shit load of money to invest in forex, THERE WAS NO LEVERAGE
then brokers started going broke (Read up on Forex History)
now… to overcome this issue SMALLER BROKERS offered the average joe smith LEVERAGE
Meaning… Hey mate, I as the broker will give you 1:100 Leverage
Meaning if you have only $100 in your pocket
I’ll front up the rest so you can CONTROL 100X THAT AMOUNT IN THE MARKET
hence you can control 10,000 with $100
if Leverage is 1:1 and you have $1,000
- The broker is not giving you financial assistance
- if you trade 0.1 Lots and you win 10 pips you will have $1 per pip x 10 pips = $10
NOW…
if your leverage is 1:100 and you have $1,000
and you trade 0.1 Lots and you win 10 pips, you still win only $10
if your leverage is 1:400
THE SAME THING HAPPENS, you only end up with $10, if you trade with 0.1 Lots over 10 pips
WHAT LEVERAGE DOES IS… AS THE NAME SUGGESTS
it allows you to TRADE WITH LARGER LOT SIZES
so if your broker gives you 1:100 Leverage and you have $1,000
THE MARKET SEE’S IT AS $100,000 Because your broker essentially LOANED YOU $99,000 to trade with
YOU HAVE TO GIVE THAT MONEY BACK ON COMPLETION OF TRADE
YOUR BENEFIT IS THAT IN THAT TRADE YOU ARE NOW ABLE TO TRADE WITH , LET’S SAY 1.0 STANDARD LOT ($10 Per Pip)
Where as if you tried that with $100 on 1:1 Leverage You’d be broke in 10 pips
LEVERAGE ALLOWS YOU TO USE HIGHER LOT SIZES
and still to manage your risk
BUT BEWARE OF LEVERAGE THAT IS TOO HIGH
YOU MUST AT ALL TIMES MAINTAIN A MIN. … MARGIN LEVEL (be sure you understand this)
now… VOLUME
volume is this
let’s say right now you go and trade EUR USD
well, we want to know
HOW MANY PEOPLE ARE BUYING EUR right now
and How many people are SELLING EUR right now
this is a measure of VOLUME
it tells you what the Majority of people BELIEVE as to the direction of the market
it also tells you who has money committed IN WHICH DIRECTION
it has nothing to do with Leverage