***Urgent help: What leverage is actually being used?

Beginner Questions
1

Dear expert traders,

Please give me a clear explanation what leverage is actually being used for the following scenarios.
If my,
Account leverage: 1:100
Account balance: $1000
Currency pair: EURUSD

(1) 1 buy position
Lot: 0.01 (std)

(2) 1 buy position and 1 sell position
Buy Lot: 0.01 (std)
Sell Lot: 0.02 (std)

(3) 2 buy positions and 1 sell position
Buy Lot: 0.01, 0.03 (std)
Sell Lot: 0.02 (std)

(4) 2 buy positions and 2 sell position
Buy Lot: 0.01, 0.03 (std)
Sell Lot: 0.02, 0.04 (std)

(4) 3 buy positions and 2 sell position
Buy Lot: 0.01, 0.03, 0.05 (std)
Sell Lot: 0.02, 0.04 (std)

I am expecting a good explanation from you. :blush:

Thanks
Faruque Rahman

2

[quote=“monirainvestment, post:1, topic:106521, full:true”]
Dear expert traders,

Please give me a clear explanation what leverage is actually being used for the following scenarios.

… I am expecting a good explanation from you. :blush:[/quote]

If you are trading a single position, actual leverage used depends on:

• your account balance, and
• the notional value of your (single) position, which depends on the pair you are trading

If you are trading multiple positions, each single position can be figured as described above. The total leverage used in this scenario is simply the sum of the single-position leverages.

Your question implies that all of the positions in your 5 examples are EUR/USD positions, and that you are simultaneously long and short the same pair. In other words, this is an attempt at some sort of partial hedge. Given all that, here are the answers to your 5 examples:

(1) At the current price (EUR/USD = 1.1337), your 0.01 lot (1,000 units) has a notional value of 1,000 x $1.1337 = $1,133.70. The actual leverage used in this trade is notional value ÷ account balance = $1,133.70 ÷ $1,000 = 1.13:1 actual leverage (rounded off).

(2) Using the same current price for EUR/USD, your 0.01 lot (long) and 0.02 lot (short) add up to 0.03 lot of EUR/USD (whether long and short does not matter). This combined position size is 3 times as large as the single position in example #1, so the actual leverage used is three times as much: 3 x 1.1337 = 3.4:1 actual leverage (rounded off).

(3) In this example, you have a total of 6 micro-lots (6 positions of 0.01 lot each), so the actual leverage in this case is 6 x 1.1337 = 6.8:1 actual leverage (rounded off).

(4) In this example, 10 micro-lots results in actual leverage of 10 x 1.1337 = 11.3:1 actual leverage (rounded off).

(5) In this example, 15 x 1.1337 = 17:1 actual leverage.

I’m expecting you to carefully study these examples, and understand them completely, before asking any more questions.:laughing:

3

Thanks for reply.
That means leverage will be increased with the Hedge positions?
Is risk increased with the Hedge positions?

4

You’re the founder and CEO of an investment firm. You should be answering my question not us answering yours.

And if this is the best you can come up with I pity the fool investing with you!

5

These are some critical stuff need to be confirmed.
Because some professional investors ask me regarding this.

I always consider the volume or lot size whatever the leverage set into my account. If my account balance is $1000 and open a position with 0.01 lot then my usage leverage is 1:1, if 2 positions with 0.01 lot or 1 position with 0.02 lot then the usage leverage is 1:2, if 3 positions with 0.01 lot or 1 position with 0.03 lot the leverage is 1:3 and so on.

Actually I consider the risk exposure as my usage leverage. Does not it make sense?

But when I apply hedging positions some performance measurement company cannot calculate my risk exposure exactly. For example, BUY position with 0.01 lot and SELL position with 0.02 lot. Now if market would go upside 100 pips then what will happen? $10 Profit from BUY position and $20 Loss from SELL position. So total loss is $10-$20 = -$10. So my risk exposure/usage leverage is similar to 1:1. Am I right or wrong?

Performance measurement company measures as 1:3 leverage but does it make sense? Because my risk exposure is same as 1:1 leverage.

Hope you understand why I worry about this scenario.

Thanks for your comments.

6

Everyone reading it can see why you worry.

It’s because you’re the founder and CEO of an “investment company” and are pretending to have been a professional forex trader for 7 years, but actually have no idea what you’re talking about.

1 Like
7

Reckon he’s been called out by an investor and now stands to lose a significant amount. Hedging has no place in the world of speculating!

8

Who told you hedging has no place?

So far I have researched with more than hundred trading strategies.
Have seen lots of fund managers and analyzed theirs strategies too.

Hedging techniques is one of the effective method to fight well :muscle: with the
most complex Forex market.