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  1. #1
    Rookie Member duf180's Avatar

    forex leverage question !!!

    Would this formula be true?

    1:50 ratio x 0.1 lot = 1:500 ratio x 0.01 lot

    I want to try forex, but the broker I would like to use offers only a maximum of 1:50 leverage ratio and I want to adjust my lots accordingly. I'm I understanding this right?

  2. #2
    Moderator Kolyo's Avatar
    Hi duf180,

    Actually you are not absolutely right…I will explain you here but need to warn you that trading spot forex is a bit more complex and complicated than binary options, that’s why we believe it is better to start with binaries before trying other style and types of trading.

    Here is the answer – leverage is the times you need to multiply your account balance to have your current position. For example you have 1k in your account and you want to trade 1 mini lot (10k). What is your actual leverage? Of course 10:1. So the things you should follow are: what is your actual position size and what is your risk (the money you will lose if your stop is hit, it is easy to calculate starting from your position size). If you find it difficult try first binary options, there you don’t need any calculations, your risk/reward is predetermined and you can not lose more than you place in risk (i.e. your contract size)
    "The goal of a successful trader is to make the best trades. Money is secondary." - Alexander Elder

  3. #3
    Rookie Member duf180's Avatar
    Quote Originally Posted by Kolyo View Post
    Hi duf180,

    Actually you are not absolutely right…I will explain you here but need to warn you that trading spot forex is a bit more complex and complicated than binary options, that’s why we believe it is better to start with binaries before trying other style and types of trading.

    Here is the answer – leverage is the times you need to multiply your account balance to have your current position. For example you have 1k in your account and you want to trade 1 mini lot (10k). What is your actual leverage? Of course 10:1. So the things you should follow are: what is your actual position size and what is your risk (the money you will lose if your stop is hit, it is easy to calculate starting from your position size). If you find it difficult try first binary options, there you don’t need any calculations, your risk/reward is predetermined and you can not lose more than you place in risk (i.e. your contract size)
    Thanks Kolyo!

    I found some info on the net and I think I understand now. Leverage does not affect the value of a pip but the margin you need to buy a lot (or mini lot). So if I understand this right, more leverage the better for the trader because you need less margin to buy the same lot. Is that right?

  4. #4
    Legendry Member willyw's Avatar
    Quote Originally Posted by duf180 View Post
    Thanks Kolyo!

    I found some info on the net and I think I understand now. Leverage does not affect the value of a pip but the margin you need to buy a lot (or mini lot). So if I understand this right, more leverage the better for the trader because you need less margin to buy the same lot. Is that right?
    Hi duf180, yes the higher the leverage the better for the trader as you use lesser margin to trade. The higher the leverage the risk will be higher. In my 28 years in forex I see many traders tend to over-trade because of high leverage. My advise for a newbie to trade 1:100 leverage. I am experince in forex and I do not use higher than 1:200 leverage.

  5. #5
    Legendry Member milos's Avatar
    Milos risk management trading rules

    Leverage 100:1

    $100.000 lot 8.00
    $50.000 lot 4.00
    $25.000 lot 2.00
    $10.000 lot 1.00
    $5000 lot 0.05
    $3000 lot 0.03
    $1000 lot 0.02
    $100-$500 lot 0.01

    100:1 Leverage = 1% Margin
    50:1 Leverage = 2% Margin
    40:1 Leverage = 2.5% Margin
    30:1 Leverage = 3.33% Margin
    25:1 Leverage = 4% Margin
    20:1 Leverage = 5% Margin
    10:1 Leverage = 10% Margin

    Leverage is 1:100, Margin is 1% EUR/USD rate is 1.1200) 1 lot of standard contracts of EUR/USD = €100000.We have to multiply the contract size in the US dollars.Therefore 1 lot of EUR/USD = 112.000

    As Margin is 1% of the Base Currency.1/100 x Dollar Margin requirement 0.01*$ 112.000 = $1120.The client has to have a minimum of $1120 in order to be able to buy/sell this position.

    The client wants to open a 4 mini contacts (40000base currency) = 0.4 Lots. At the rate of GBP/USD = 1.5700(£ 40000.00 = $62800)1/100* $62800 = $628. The client has to have a minimum of $628 in order to be able to buy/sell this position.

    Calculate the margin

    Margin = 1/Leverage

    Leverage = 1/Margin = 100/Margin%

    Leverage 1:100

    100:1 leverage ratio yields a margin percentage of 1/100 = 0.01 = 1%.

    If the margin is 0.01 then the margin percentage is 1% and leverage = 1/0.01 = 100/1 = 100.

    Leverage 1:200

    A 200:1 ratio yields 1/200 = 0.005 = 0.5%.

    Margin Requirement = Current Price x Units Traded x Margin

  6. #6
    Rookie Member duf180's Avatar
    Thank you Willyw and Milos for your answers! I get it now!

  7. #7
    Legendry Member milos's Avatar
    Quote Originally Posted by duf180 View Post
    Thank you Willyw and Milos for your answers! I get it now!
    You're welcome as always.

  8. #8
    Banned Bradhaddin's Avatar
    Depends on the strategy you have buy.

  9. #9
    Legendry Member willyw's Avatar
    Quote Originally Posted by duf180 View Post
    Thank you Willyw and Milos for your answers! I get it now!
    You are most welcome

  10. #10
    Legendry Member willyw's Avatar
    Quote Originally Posted by Bradhaddin View Post
    Depends on the strategy you have buy.
    which strategy are you referring to?

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