**How Leverage Increases Forex Trading Profits and Loses**

If you have a 1,000 dollar Forex trading account with leverage 100:1 you can buy a maximum of 1 lot which is equal to 100,000 dollars Forex contract(1 Standard lot).

Let us calculate Forex profits and losses based on three examples of **used leverage**, based on $1,000 Forex account:

- 1 lot(100:1)
- 0.5 lots(50:1)
- 0.2 lots(20:1)

**NB:** This is the **Leverage used** not the **Maximum leverage**, If a Forex broker gives you 100:1 leverage, but you only trade 0.1 lot the **used leverage** you are using is **10:1**, But if you trade 1 contract then the you will use is **100:1** which is equal to **Maximum(100:1).**

So the example referred in this below is talking of the** leverage used** based on the volume of the trade that you have opened.

## Example 1: (100:1 Leverage or 1 Lot)

For 1 lot 1 pip equals $ 10

**If you make a profit of 100 pips the calculation of profit in dollars is:**

1 lot

1 pip = $10

100 pips = 100 * 10 = $1000

**Total= balance + profit**

= 1000+ 1000

= $2,000* you have just doubled your trading account balance*

**If you make a loss of 100 pips the loss in dollars is**

1 lot

1 pip = $10

100 pips = 100 * 10 = $1000

**Total= account balance - loss**

Total= 1000 - 1000

Total = $ 0 *you have just lost your trading account balance*

## Example 2 :(50:1 Leverage or 0.5 Lots)

For 0.5 lots 1 pip equals $ 5

**If you make a profit of 100 pips the profit in dollars is**

0.5 lots

1 pip = $5

100 pips = 100 * 5 = $500

**Total= balance + profit**

= 1000+ 500

= $1,500

**If you make a loss of 100 pips the loss in dollars is**

0.5 lots

1 pip = $5

100 pips = 100 * 5 = $500

**Total= account balance - loss**

Total= 1000 - 500

Total= $500 *you have just lost half of your trading account balance*

## Example 3: (Leverage 20:1 or 0.2 Lots)

For 0.2 lots 1 pip equals $ 2

**If you make a profit of 100 pips the profit in dollars is**

0.2 lots

1 pip = $2

100 pips = 100 * 2 = $200

**Total=balance + profit**

= 1000+ 200

= $1,200

**If you make a loss of 100 pips the loss in dollars is**

0.2 lots

1 pip = $2

100 pips = 100 * 5 = $200

**Total= account balance - loss**

Total= 1000 - 200

Total= $800 *you have just lost 0.2 of your trading account balance*

**From the above example you can see that the more leverage you use the greater the profit or loss and the less you use the lesser the profit or losses.**

It is therefore better to use less leverage so as to minimize the risks involved. **The higher the leverage used the higher the risk. This is one of the forex leverage rules not to trade with more than 5:1 leverage.**

**In Forex leverage rules: It is always advisable to stay below 5:1 which is still high, most professional money managers use 2:1 meaning they trade only 2 lots for every $100,000 in their Forex trading account**.