Ok i have been around the forums for a while and i am the first to admit i am not the sharpest knife around, especially since i am math challenged. Truth is i still struggle understanding the basics of leverage.
For example lets say i have two forex accounts. Both start with balances of 5k. One account is 100:1 leveraged and the other is 400:1 leveraged. I place a trade simultaneously on both accounts purchasing a full lot of EUR/USD at the price of 1.3790. For the 100:1 leveraged account this means my used margin is $1000 and my unused margin is $4000. On my 400:1 leveraged account my used margin is only $250 and my unused margin is $4750.
First of all it seems much safer with the 400:1 leveraged accout since i have more unused margin to play with in case the position goes against me.
Now suppose the price drops to 1.3740. So i close out at -50 pips. Now the pip value is worth $10 a pip so i lose $500 on both accounts right? It seems like high leverage is win win since you only have to put less money on deposit for used margin. However i must be wrong since i hear high leverage is dangerous. So how is this?