please pardon the ultra newbie question but is there a difference between a position of $25 at 4 to 1 leverage (or 1 to 4 if thats how it should be expressed) and a position of $100 at zero or 1 to 1 leverage?
thanks!
yes in the 1 to 1 leverage you are using more of your own money so you will have less equity.
Oh yes thanks, I hadn’t thought about that. That explains what someone typed in another thread about if you use leverage then you can have more trades open at the same time. Am I right to be thinking that you mean more equity while the trade is still open, but a loss of 10 pips would lose the same amount of equity in both trades assuming everything else is the same about the two trades?
If you have a $100 account and trade a single trade of 100 currency units you are not using leverage at all (1 to 1).
If you have a $100 account and trade a single trade of 200 currency units you are using 2 to 1 leverage.
In both circumstances your equity is $100. Your equity is simply the value of your account. There is closed equity and open trade equity, but lets not get confused about that here. If you deposited $100 into the account and you have not won or lost anything yet it doesn’t matter if you have no trades or 2,000 units in open trades, your account equity is still $100.
If you lose $5 your equity drops to $95. It doesn’t matter if you incurred that loss trading 100 units or 2000 units, if you started with $100 and lost $5 your equity is $95.
If you put on a trade of 100 units in a currency pair in which the counter in that pair is also the one in which your account is denominated, then each pip won or lost will win or lose .01 currency units. Example: A 100 unit EUR/USD trade in an account denominated in US dollars will win or lose 1 cent per pip won or lost in the trade. If you trade 200 units then each pip won or lost will win or lose 2 cents. If you trade 1,000 units then each pip won or lost will win or lose 10 cents.
To use leverage to your advantage, put most of your money (75% or more) in a local bank and send only a small portion (25% or so) to your dealer so you can trade as if all your cash was with the dealer even though most of it is safely in the bank. If there is any sudden trouble (like your dealer goes bankrupt and you lose your deposit) you will survive because most of your money is actually in a local bank and not on deposit with your dealer.
-Adrian
Yes, there is a difference as you get more purchasing power the higher your leverage is. This means you can earn and lose more money per trade. The amount of leverage that you feel comfortable with is up to you as there is no right or wrong.
Absolutely no difference. in both cases your market position is …100$.
The difference is only in how long you stand in market with that position. For example if one pip move cost 1$ then with 25$ deposit and 1:4 leverage you position can stand 25 downward pips, but with 100$ and 1:1 - 100 pips. In first case, loss of more than 25 pips will knock you out from market, while in second case your position will be still in the market.
Hope this explanation is simple enough to understand.
thanks everyone that pretty much answers what I was wanting to know, especially the last response from profitbaby that helped me to see it clearer!