Hi guys,

I need help understanding leverage im going through the school but i still dont quite get it.

Could someone please help .

Thank you

Leverage will be displayed as day 1:20, 1:40 or 1:100 etc.

Using a £1,000 account & 1:40 leverage, that will give you a maximum buying power of £1,000 x 40 so you have £40,000 to trade with.

The other side of leverage is how your broker protects themselves which is when you open a position, they will keep money from your account aside to cover any potential loses. So with 1:40 leverage, for every £1,000 in your position size, your broker will keep £25 aside (£1,000/40 = £25).

So a £1,000 account could allow you to trade £40,000. Say you decided to take up a position that was £10,000. Your broker would open the position but your available margin would be £750 as your broker would keep aside the £25 for EACH £1,000 of your position (£25 x 10). This occurs whether your trade is winning or losing. Stay your trade then makes £40 & you close the trade, the £250 that was used to cover your open trade is then returned.

It’s difficult to explain & keep simple but that’s my attempt, hopefully it helps. Keep reading & keep up the Pip School & hopefully it all comes together & clicks.

Thank you so much !

As I know, leverage is facility from brokers which is given to retail traders which allow them to trade with small amount of fund as capital for trading. Usually, higher leverage will allow you to hold floating minus more than low leverage with same lot size as assumption in trading. If there is broker which offered 1:1000 as leverage so with capital $100 then you could trade in the market because the leverage will help you to enter into forex market as you had $100.000 as capital.

This might help you. If they are offering any further services or products, I’m not vouching for them, but this tool is a great way to see what happens with the different leverages, with explanations.

Forex Money Management
Hope it helps

One thing to keep in mind is that no matter what leverage you use, risk management is key. Also, your broker will not face losses no matter what leverage you use. Leverage is a great tool if used properly!

Leverage could make you magnify your trading ability, such as 1:1000 for 100 dollars, you can trade as 100,000 dollars, becase you are a newbies, the risk is too high for you. Now I’m using 1:200 for learing with hotforex. Just for your reference.

Actually 1:1000 is not available in many brokers and I recommend you shouldn’t trade at that leverage, it’s very risky. With just a short movement of the market, you can say goodbye to your account

If you know your actual account balance (which is hopefully bloody obvious) and your average stop loss used on your trades (providing your trading system has a close range in typical stops placed) and finally the average or fixed risk as a percentage of the account balance placed on each trade (know as ‘r’ for the geeky folks) then you can estimate the actual leverage employed on your trades before even opening an fx account and worrying about what maximum leverage to accept.

For example.
Account balance $20,000
Risk per trade 2%
Average typical stop 50 pips
2% of $20,000 = $400
$400 / 50 pips = $8 per pip

Let’s assume you trade currency pair ending in xxx/usd where one standard lot is $10 per pip (a notional value of $100,000) So, $8 per pip has a notional value of $80,000 against an account balance of $20,000.

Leverage used on this trade is
80,000 / 20,000 = 4.0
Leverage employed 1:4

So why take an account with 1:100 leverage when you need only 4% of this.

(You should take into account required margin too which is subtracted from your balance as the trade is placed)

Leverage is of great advantage because with leverage you have more money to trade but you have be aware that the danger of leverage is how you use it . Most beginners use low leverage because they do have experience about forex so as to prevent huge loss.

With Leverage we can do trading more using less part of our our investment. It is good for low investors to be a part of this business. In start every one is fear of loss so they can get experience of live trading with low investment.

Leverage to me means how much deposit you have to pay ! so really shouldn’t be used to calculate position size, you should think of your pip value and stop distance to work out how much you are risking ! if you trade a too large position with a small account 40 pips can smash you to pieces, always calculate the risk and the margin is the margin whatever that ends up being because every point against you will be adjusted in your account in real time.

Leverage is necessary, without it a trader cannot trade in forex market unless he has very huge funds. But leverage should be selected according to account capital. Very high leverage is also dangerous.

Leverage is offered as an assistance for the trader, helping to open a position or hold a position longer with less funds, however it is also dangerous as it is maximize the trading risks.

What’s best size of leverage in your view? I switched to 1:200 with Hotforex after CHF event, what about you?

never above 1:10… but depends on your maximum account open exposure and the ratio between stop loss in pips against % risked of account balance per trade. You cant just give a black and white answer.

Leverage is like a gun. Only dangerous if you don’t understand how to use it. Take the time before you assign an arbitrary number based on someone else s opinion, to understand leverage and decide what’s the number based on your goals. Leverage can be a great weapon in your quest to reach your trading goals, but misunderstood, can be one of your worst nightmares.

This gun broke but the person knew how to use it. Explain that :stuck_out_tongue:

Sorry I don’t follow your point

Forget it, a pointless joke really.

Leverage is like a gun. Only dangerous if you don’t understand how to use it.