Need help with leverage

hi, all
i am brand new to Forex. I opened an Oanda game account, i’ve read a few articles about Forex as well as a lot on this forum, but still the main question remains unanswered. I apologise for the question, but as I said i am new.
Ok, if I have $100 in my mini account and the leverage is 50:1, how much in funds do i need to trade 1K lot?:confused:

thank you guys for your help :slight_smile:

Hi, sahara

First of all, you would trade a 1K position in a [B]micro account[/B], not a mini account.

[B]The term “leverage” has two meanings:[/B]

B Maximum leverage allowed by your broker.[/B] That’s the 50:1 you mentioned in your example. Your broker is saying that you are not allowed to put on a position which is larger than 50 times the amount you have in your account.

Fifty times the $100 in your account would be $5,000 or 5K.

B The actual leverage you use,[/B] based on your position size and your account size. In your example, your postion size is $1,000 or 1K. Your account size is $100. Therefore, the actual leverage you are using is 10:1 ($1,000:$100 = 10:1).

If you trade this $1,000 position (= 1 micro-lot) in your $100 account, your broker will earmark $20 of your account for [B]margin[/B]. This money is yours, but it is not available to cover either the spread or losses in your account. The remaining $80 in your account is available to cover the spread and any losses which might occur.

Here are two relationships which you should study until they are a permanent part of your brain:

[B]Margin Used x Broker’s Maximum Allowable Leverage = Position Size[/B]

In your example, $20 margin used x 50 (allowable leverage) = $1,000 (position size)

And, [B]Account Size x Actual Leverage Used = Position Size[/B]

In your example, $100 (account size) x 10 (actual leverage) = $1,000 (position size)

These two relationships hold for an account with one open position. If you have two or more open positions in one account, you have to add up all your positions.

Questions about leverage and margin have been asked and answered many times on this Forum. You should search the Forum and read the posts/threads that have already dealt with these questions.

Clint

Clint,
Thank you so much. I got it now, it could not be explained better.:slight_smile: