Understanding about leverage value

Hello everyone!

I learn many articles and ebooks and this great website also but none of them clarify me about a big confusion in my mind about leverage.
As i can see different brokers offering different levels of leverage usually starting from 1:100 to 1:1000
all of google information ebooks are saying that leverage only effects margin level.
But the question is if it is true then why not all investors choose 1:1000 to safe their money and increasing there margin level.
why they will choose 1:100 to decrease there margin level and more risk to investment, even everybody have excellent option to choose 1:1000.
If i am 1:1000 user when & why i should choose 1:100

I hope you understand my question and about the point i am talking.
Please brief me with example.

Thank you so much

Well, there are many threads on that topic on this site. So I only give you the short version and ask you to look for the threads it you’d like to know more.

If you have $1000 and can have a leverage of 1000:1, you can open an order of $1,000,000 or 10 lots. If you can only do 100:1 this would be 100,000 or 1 lot.

Lets say that you make 1 pip profit or loss.

For the 1000:1 you would make 10% profit/loss and on the 100:1 1% profit/loss.

As you may notice, your 1000:1 would be depleted when you have a 10 pip loss (bye bye money) and your broker will close your account. With you 100:1 you can make a loss of 100 pip befor that happens. Ergo, that is why people don’t trade 1000:1. This would only be if you make maximum use of your leverage.

Disclaimer: That your account allows you to trade 100:1, doesn’t mean that you trade 100:1 every trade. The 100:1 is a maximum. Common advice is not to trade more than 2% per trade. How much leverage that is depends on your account balance, that may be greater than the money reserved for trading, so i couldn’t tell you. But it is very safe.

A guy, Rhodytrader, may come by and give you a whole theoretical explenation, why I am not completely right. If he does, perfect, but what I am saying is correct. I am just saving you and myself time by giving a practical answer…:slight_smile: (Just teasing you Rhody :slight_smile: )

Your reply is really very opposite than what i have learn in books?

1:100 is more dangrous than 1:1000

if i use 1:1000 i will have more margin level and i can stay in marking for more pips.

but instead of this if i have 1:100 i will stay less because i will have less pips to stay in market.

and you saying me 1:1000 will say me bye bye…

this is absolutely wrong i think you need to learn more…

Yes, I am saying that and you are completely missing the point. Considering your last sentence I am not spending time on it to explain it to you. And I can’t wait to see more people viewing this thread to see your remark.

Happy trading…

No leverage is more dangerous than others. I can’t believe people are still discussing leverage on forums.

Azeem, try it out on a demo with a 1000:1 v 100:1… put the theorys into.practice, I thought the same as you at first now I’d agree with ideFX 100% but a demo account is easy to set up for this purpose just remember to set the starting capital to what you intend to start with to get a fair demostration. But really your margin is based on the amount of actual funds you have to cover any losses on your trade, the bigger the leverage the larger value a single pip has therefore your margin can not afford to loose many. At a 1000:1 you can stand a ten pip movement against you, then your cash is gone. With a 10:1 you can stand a 1000 pip movment because each pip movement is only multiplied by 10 instead of 1000. If you had 10 apple’s for $1 each and they suddenly became worth .80 you are down 20% or $2 now if you have 1000 apples at $1 each and they became worth .80 each you still lost 20% bit 20% of a 1000 is $20 you lost, now what’s 20% of a million? 20000… So the less apples you have the less money you lose when the market goes against you :slight_smile:

That’s how I see it anyway, but I could be wrong… Please correct if so :slight_smile:

peace ans pips
Kaya

It can be a little confusing, hopefully this will help:

Defining Leverage and Margin