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Thread: Leverage, can someone explain it to me?

  1. #11
    Leverage is the fund supplied by the broker to the trader, with all the leverage we will be able to trade with the maximum. Leverage can help us to exchange with substantial volume and chances we will be even greater. If we choose leverage 1: 1000 then we can exchange with a 1000-fold of our capital

  2. #12
    Largely traders are scared about using high leverage in Forex. It is quite right that choosing high leverage will cause the reason high reduction but can also give the major profit , its overall risky to use the large leverage , my view is that we ought to use the little leverage in order to get the fruitful result from the enterprise.

  3. #13
    Quote Originally Posted by ;
    I have been a Forex trader for years, and this was my very first week trading FX. Having a 3k account, also in about 5 times I took it from 3k to 7500$ using merely a one lot. While I say leverage I mean to say How does your account size influence how many lots you can utilize? Forex has made forex quite difficult for me to understand and if anyone can give an adequate explanation I would greatly appreciate it. Due
    leverage is debt. You borrow money that you don't have and you utilize your small cash as collateral.
    Let state 1:1000
    1 lot 100
    When the market moves 10 pips against you, you will lost your $100 and you owe money to the broker (your loses) which they will deduct it from the account balance.

  4. #14
    In Fx trading from all trading elements leverage is an important financial instrument which
    an investor should consider when selecting a broker.
    Practically leverage allows an investor to cultivate his market exposure to a degree that exceeds the initial investments.

  5. #15
    Leverage isn't inevitable for trading. The broker actually provide this financial tool as a loan , but if you're able to use it with great preparation with risk handling procedure then you are able to earn profit quite quickly by using it. On the other hand you'll be able to fall a great reduction by employing leverage as a result of non-sense preparation and no risk management program.

  6. #16
    Maximum traders in Forex like to exchange with high leverage for earning profit instantly.
    But traders that make profit consistency ,
    I do not believe they use high leverage.
    They way I see it.
    High leverage gives us the benefits not to worry about margin requirements and one less thing to focus on. Abusing leverage could be costly for traders.

  7. #17
    I have observed newcomer can't control emotion by high leverage which provides their brokerage. Ultimately they become failure when trading practically with high leverage. So I think newcomer always should prevent high leverage for avoiding risk. But they can exchange with high leverage in demo account too see its response.

  8. #18
    Sheesh, a whole group of people appear to have some confused thoughts about leverage. It's very straightforward.

    Leverage Defined
    Leverage decides the amount of free margin needed in your account to open a trade. That's all. A leverage of 1:100 implies that for each $100 of currency exchanged you need to have $1 margin in your account. A standard lot size is 100,000 currency units. If that currency is USD afterward a 1:100 leverage signifies your account takes $1000 margin for each complete lot traded, short or long. If your leverage is 1:500 afterward a $200 margin is required for each lot traded. So in the event that you want to exchange 0.1 lots at 1:500 you'd require a margin of $200 X 0.1 = $20.

    From the Futures markets, all of contracts are the identical dimensions and cannot be broken up into smaller units. So from the futures market it is customary to talk of a fixed value of margin, e.g. the margin for ES is $10,000. But in Forex you can exchange fractions of a lot, therefore margin is a moving target, so it is more customary to talk concerning leverage rather than margin per lot. The relationship between the amount of margin required and the amount of currency exchanged is the leverage.

    Definition of Lot
    The currency pairs exchanged are commonly known to utilizing six-character strings, for example as EURUSD, GBPJPY, etc.. A Lot is defined as 100,000 units of their currency recorded. 1 lot of EURUSD is 100,000 euros (traded contrary to the USD). 1 lot of AUDJPY is 100,000 Australian dollars (traded against the JPY). When you buy a currency pair (e.g. GBPCAD) you always buy the front currency of the pair. A lot would be 100,000 units, and its always the front currency of the 2 currencies termed that is being bought or sold. (The rear currency recorded is explained further below.)

    Margins Described
    Margin is the amount of money that your broker requires you to devote to covering potential future losses on a trade before he'll allow the trade to be opened. That money stays in your account after the trade is opened, but it is currently alloed and cannot be utilized as margin for a different trade. The whole amount of unalloed funds available in your account to open extra transactions is exhibited in Metatrader as Free margin.

    From the Futures markets, you will find just two margin amounts provided: a Initial Margin and a Maintenance Margin. Initial margin is how much margin is needed to open a trade, and the maintenance margin is how much is needed to keep the trade open before you receive a margin call from the broker (which literally meant that you just received a telephone call to immediately put up more margin). The maintenance margin was typically 80% of the initial margin once I traded futures (I suppose it is still the exact same now). If the account wasn't kept above the maintenance margin level the broker would shut the trade.

    The cash Forex market is a lot more loosey goosey about margin calls and maintenance margin (and they do not call it). The term you're seeking is stopout level and it is typically posted somewhere on the broker's site, where the particulars of the trading account are recorded. The maximum stopout level I have observed is 50%, which means your upkeep margin is 50 percent of the initial margin. Many brokers have a stopout level of 20% and some may go much lower. When the free margin in your account goes negative, in Metatrader 4 the base line which displays the Balance, Equity and Free margin of all your open transactions will become pink. I have asked some Forex brokers about margin calls, and they explained to me that the term margin call just means that the summary line in Metatrader 4 turns pink. You don't ever get a telephone call from them asking for much more margin. The line will stay pink provided that the account balance is less than 100 percent of the total margin requirement for many tickets currently available. If the available balance of your account drops under stopout level X margin demand (e.g. 50 percent of the entire margin required), the server will randomly shut tickets in your account to reduce the total margin requirement.

    Leverage isn't a Loan
    Several posts in this thread have stated or implied that leverage is a loan, which it isn't. In place Forex, currencies are always traded in pairs, you simultaneously buy one currency and sell the identical value of another currency. The web difference is always zero -- which usually means you neither borrow nor lend anything. When you buy one lot of EURUSD you buy 100,000 euros, and you sell 100,000 X EURUSD quote price of USD (the specific amount varies according to the current quoted price). So for instance, if EURUSD is now quoted in 1.11945, then once you buy one lot of EURUSD you receive 100,000 euros and you send 100,000 X 1.11945 = 111,945 USD. Later, if the EURUSD quote varies to 1.11995 and you sell one lot of EURUSD you send just 100,000 euros, and you receive 111,995 USD, the gap between the USD you obtained when you closed the trade and also the USD you paid once you opened it is 50 USD, which stays in your account, minus commission, even following the trade is closed. When the rear currency is something other than USD (e.g. JPY) you then send or receive units of the rear currency, but when the profit or loss will be calculated the program automatically converts it to the base currency of the account (generally USD) in the prevailing exchange rate.

    Its not rocket science, so spend some time to figure out it. As a trader, if you would like to win consistently you're going to have to play with your A game daily (play with your A game = American slang, meaning to play in the summit of your prospective). It's difficult to see how anybody can do that if each time they move to open a trade they've a nagging doubt that there is something about Forex that they do not know. Clarity is important.

  9. #19
    Thank you very much Trainman for your description that is nice.
    Obtained some new things especially leverage is not financing.

  10. #20
    You have to be cautious with leverage - yes you win more, but your losses become off also.

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