Using Leverage in MT4

Beginner Questions
1

Hi, I need help understanding leverage relating to MT4. I have 3 questions as I’m entirely confused about this matter.

I know what leverage is, (please don’t give me textbook definition as my broker did and was no help to my actual questions) but still am confused on how to use it when trading on MT4 mobile.

For example:

If I deposit $100 into a 50:1 account, that (1) means I can control up to $500 and that (2) for every $1 in my account, it is really worth $50.

But how does it work when I go to place a trade?

  1. How come my balance doesn’t reflect the $500 that I am leveraging?

  2. How come my losses on a demo account did not reflect losing $50 per every $1, but rather reflected losing the actual amount according to my $100 balance as if I had not leveraged at all. ( If i lost $1.00 I’d really be losing $50, half of my account since I leveraged 50:1, right?)

  3. I ran into “Not enough money” on my demo account; so, how is leverage connected with my lot size?

Ex: If I leverage $500: that’s even below a micro lot (1,000 currency units); yet my MT4 wouldn’t even let me place a .50 position size trade which = $500 units… WHICH I’M SUPPOSED TO BE LEVERAGING??

ENTIRELY CONFUSED. PLEASE HELP :frowning:

2

I would suggest that you read the content on the link below and see the examples how the leverages have impact on the lot size.

There is also information why you get the message “not enough money”.

If you still have some question just ask and I will explain it to you.

3

your $100 is worth $5000 not 500, that means 0.05 lot is the maximum you can trade. which will also mean you will blow you account with the 1st trade if it goes wrong (also some brokers will not let you use 100% leverage).

4

Thats not what my broker said…my broker said my 50:1 means $500…also, the highest lot I could go was 0.02

5

Thanks, one more question if you would help please…

For 50:1 leverage my margin requirement to open a mini lot ($1,000 units) =2% which is $20 USD…
This is what I dont get…I have more than 20 US balance yet cannot even open one mini lot…

6

1 Mini lot = 10,000 units

Required margin = notional value of the position/leverage

Margin = 10,000/50 = $200

With your balance of $100 you can’t open a mini lot.

7

As Maximus wrote you need to have more money to open mini lot size.

Trading with small amount like $50 or $100 will be hard for you but it is possible.

8

I understand this now. Thank you a lot.

If that is the case: How come I could only open 2 mirco lots if
1,000/50= $20 and 2,000/50=40

and my balance was more than $40?

9

This would be so much easier to answer if you told us your broker and what pair you’re trading.

Those two things can affect your margin requirements, as can the amount of leverage you use.

This is Oanda’s margin requirement page in the US.
https://www1.oanda.com/resources/legal/united-states/legal/margin-rates

Change the leverage on the right hand side (up to 50:1) and see what happens to the margin requirements. They change.

Here are the requirements for Oanda Europe LTD in the UK:
https://www1.oanda.com/resources/legal/europe/legal/margin-rates
Check out the leverage. You can go to 100:1.

But even at 10:1, there are differences between the two requirements, depending on where you are in the world.

10

Read what is margin instead. Trading with leverage based on the principle of collateral (margin) - it is the money that you deposited. Imagine you’ve borrowed from your friend 100 000 USD for currency speculations. To ensure that your friend won’t lose his money you deposit collateral - say 500 USD. It is then reasonable to say that your LOSS in the course of first opened position can not exceed 500 USD or your position will be automatically closed.

If your friend allowed you to borrow max 100 000 USD for 500 USD collateral then the leverage is 1:200. If it allows you to borrow only 10000 USD then the leverage is 1:20.

11

There is a simple way with a broker offering mt4 - open a demo using that platform.

Then not only leverage but also the difference in the various instruments will become much easier to understand - e.g. going short 1 x micro on USD10yr vs going long 1 X UK100 although both risk on trades and same size - well try it out on Oanda mt4 demo and you’ll see. :slight_smile: