Trade Forex Trading

Learn Lessons, Strategies and Technical Analysis

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

 


 

Regulated Broker

 

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 10:1 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.

Market Sentiment: Did you know that traders and market participants have been buying US Dollars because USD is the best currency to hold when there is a recession – this is because the dollar is held as the reserve currency by most central banks and during recession most traders also prefer to hold this currency, this is why USD is known as a safe haven currency. But now the market sentiment has changed and all the economies are on their way to recovery and most have even returned to economic growth based on the economic reports coming from these countries.

During times of economic growth traders prefer to sell the dollars they had bought and start buying higher yielding currencies. These higher yielding currencies include EURO and Great Britain Pound. This is why the Euro is starting to appreciate against the USD. The EURUSD is trending upwards; Crude Oil Prices have also started to move back up because demand of oil is growing because of the global economic growth, Gold is also in an upward trend because during economic growth the prices of commodities also go up because there is increase in their demand.

Takes 4 to 6 weeks to open an account, open early or fast track: Read The Article "Account Opening Procedure"

Trade with the Best Forex Broker: Read The Article "Best Forex Broker"

Poland FX Seminar Gala

XM Account Holders Attend Poland FX Seminar

XM Account Holders Hungary Seminar

Malaysia Seminar

XM Account Holders Phillipines Seminar

XM Account Holders Thailand Seminar

Regulated Online Broker

Australia Regulated Forex Broker

Forex Bonus Up To $5000

Forex Trading Championship

Silver and Gold

XM Rally Car

Regulated Broker

 

Open Forex Account

Open Demo Account
Open Real Account

Open A Forex Account

Open Demo Account
Open Real Account

Up To $5K Forex Bonus

MQL5 Signals

1 Million Forex Championship