Commodities Trading Leverage Definition
How to Calculate Commodity Trading Leverage in Commodities Trading
The definition of commodity leverage is having ability to control a large amount of money using very little of your own money & borrowing the rest - this is what makes the commodities market to attract many investors.
What does a Commodity leverage of 1 100 mean?
When Commodity Trading using leverage it means that as a trader you can open trade positions which are larger than if you were using only the amount of money in your commodity trading account without commodities trading leverage.
With commodity leverage you can use your money that is in your commodities trading account to borrow from your commodity broker through what is known as commodities trading leverage. For examples if you have a commodity trading account with $100 dollars - you can use your $100 & borrow using the commodity leverage of 1:100, which means that you'll borrow $100 from your commodity broker for every $1 in your commodities trading account & after commodity leverage you will have $100*(1:100 Commodity Trading Leverage) = $10,000.
commodity trading leverage is written in the form of a ratio:
For example commodity trading leverage 1:100 or 1:50 or 1:10
Sometimes the commodity leverage ratio can also be written as 100:1 or 50:1 or 10:1 depending on your commodities trading broker.
This ratio just explains the amount of commodity leverage whether it's written 100:1 or 1:100.
Commodity Leverage of 1:100 means you have borrowed using 1:100 & increased your trading capital 100 times.
Commodity Leverage of 1:50 means you've borrowed using 1:50 & increased your trading capital 50 times.
Commodity Leverage of 1:10 means you have borrowed using 1:10 & increased your trading capital 10 times.
Example:
We shall us this commodities trading example to explain what commodity trading leverage is? If your commodity broker gives you commodity leverage of 100:1 (this is best option to select as the maximum commodity leverage for any commodity trading account)
This means you borrow 100 dollars for every dollar you've in your commodities trading account.
To put in another way your commodity broker gives you 100 dollars for every 1 dollar in your commodities account. This is what's referred to as commodities trading leverage.
This means if you open a commodity trading account with $1,000 & your commodities trading leverage is 100 : 1, then you get $100 for every $1 you that you have in your commodity account, the total amount that you will control is:
If for 1 dollar the broker gives you 100
Then if you have 1,000 you'll get a total of:
$1,000 * 100 = 100,000 dollars
Now you control 100,000 dollars of capital in your commodities account that you can open trades with
Most new commodity traders ask what commodity leverage is best for 100 dollars, or 500 dollars, or 1,000 dollars commodity account? - The best option to choose when opening a live commodities account is always 100:1 and not 400:1.
Commodities Trading with Commodity Trading Leverage
The more commodity leverage that you use the greater the profits or losses
The less commodity leverage you use the lesser the profit or loss
It is therefore better to use less commodity leverage so that to minimize the risks involved. The higher the commodity leverage used the higher the risk. This is one of the commodity trading leverage rules not to trade with more than 5:1 commodities trading leverage.
In commodity leverage rules: It is always advisable to stay below 10:1 which is still high, most professional money managers use 2:1 in their commodity trading account.
To Learn More about Commodity Leverage and Margin - How Do You Read the Topics Below:
Commodity Leverage and Commodity Margin Explained
