My forex broker has a copy trading program which I am interested in being a provider in the future when my trading has an edge. I have been reading the terms and they said one can starting providing service for copy trading at a leverage of 1:500 but that when one crosses a threshold of subscriber base, the system will reduce the leverage to 1:100. So my question is: how will this reduction in leverage affect my profits or loss? Thanks
Leverage dictates how large volume is possible on your account.
If you are trading with the volume=2.0 later, when the leverage is reduced, you maybe will not be able to open that volume.
It can happen that the largest volume will be volume=1.0.
Leverage allows you to control more money and when is reduced you have less money.
That is way the volume is reduced.
How does it affect on your earnings
When the volume is reduced you will not earn same amount of money by each pip.
I hope you know that the pip value is not same with volume=2.0 and volume=1.0.
So, if you trade with micro lot, volume=0.01, you will not see any change by changing the leverage.
Pip value will remain the same.
Another change you will see in margin, free margin and margin level.
With different leverage there is change in margin that consequently affects free margin and margin level.
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Let me understand what you mean please. If 1 lot of EUR/USD is $10, does it mean that when leverage is reduced 2 lots of EUR/USD will not be $20? I checked the pip value calculation and leverage is not one of the factors. Please can you explain your statement above with an example like using EUR/USD? Your use of volume is confusing. I am trading forex.
Volume or lot size is the same thinkg
When you set Volume in Metatrader 4 to 1.00 that means you are using 1 standard lot.
If 1.00 lot, or Volume=1.00, gives you 1 pip = $10.00 then 2 lots, or Volume = 2.00 will give you $20.00.
If you reduce the leverage you will not change the pip value. It will stay the same.
The change will be that you will not be able to open trade with Volume = 1.00, or 1 lot. Your maximum size you can open will be Volume = 0.50(for example).
If you have open half lot size, then your pip will be worth 1 pip = $5.00.
With leverage you can control more money. If the leverage is smaller you can control less money and that is why you cannot open large lot size(or volume in MT4).
That will lead that 1 pip will not be equal to $10.00 because you did not open whole 1 standard contract.
Read more about leverage and see an example with three different leverages:
If it still is not clear let me know and I will go deeper with examples in MT4 on demo account so you will see what I mean.
Hey man
Quite basically, If you have a leverage of 1:100:
Then an account of a £1000 can control £100,000 worth of currency. So you can open higher lot size to trade.
When it drops to 1:10 now you can only control £1000 worth. Therefore your lot size has to reduce. When your lot size reduces because you physically cant buy anymore your profit will reduce.
Thanks. Now I understand it very well. I think the broker is trying to make sure I don’t do any risky trading while others are copying my trade by reducing leverage. I now understand.
Some brokers change the leverage when you reach certain amount of money on your trading account.
That amount can be changed by the deposit or by trading and increasing account balance.
yes its a very common and disgusting problem right now. so we have to be more careful when choosing a broker.