I have a question about leverage as i keep reading high leverage is a lot more risky than low leverage, all the numbers i’m using below are just for this example.
say, for example. i had an account at 500 leverage and i am entering a trade with a stop loss of 20 pips and a take profit of 20 pips. I enter 0.01 lots and my stop loss is at £1.00 and take profit is at £1.00.
to make that same trade on an account with 5 leverage, my sl and tp would be £100?
so although i can potentially make more off the trade with the very low leverage, i can also lose a lot more. does that not make low leverage more risky as i need a lot more capital?
some of us always consider high leverage as high risk , but i think there is any risk , it is completely with non-sense planning with zero risk managing planning , nothing without it.
Don’t confuse broker leverage with your leverage which means what you’re risking…
Broker leverage simply refers to the amount of money needed to purchase a single lot or fraction there of
Lmfx has a thousand to one broker leverage. So to put on a one lot trade you need $100.
All u.s. brokers have 50 to 1 leverage. That requires $2,000 to put on a one lot trade
These different amounts are simply a deposit that you broker holds to put on the trade.
you want to calculate how much money you’re willing to lose based on your account size.
If your account is $1,000 and you’re willing to lose $10 you’re willing to lose a 1% of your account.
This is usually where the wheels fall off the cart.
Because beginner investors know for a full lot is $10 a pip. with lmfx they can get into a full lot for a hundred bucks. But with a US broker at 50 to 1 they can’t come close to purchasing a full lot because it will be $2,000.
You should use the babypips search tool and punch in “Clint” and “leverage” because I believe he gives some excellent examples for a complete understanding on what to consider, how to manage and use leverage to your benefit.