Explain What is Leverage? Explain What is Gold Margin?

The meaning of Leverage is having the ability to control a large amount of money using very little of your own money and borrowing the rest - this is what makes the market to attract a lot traders.

We shall explain leverage first and then explain margin in this studying how to calculate leverage and margin tutorial.

Example:

We will use this illustration to indicate what leverage is? If your broker assigns you leverage ratio of 100:1 (this is the best option to choose as the max leverage for any trading account)

This means you borrow $100 dollars for each one dollar you have in your account.

In other terms your broker gives and provides you $100 dollars for each one dollar on your account. This is what is known as leverage.

This means that if you open a trading account with $1,000 & your leverage option is 100:1, then you get $100 for every $1 you that you have in your trading account, total amount that you will control is:

If for 1 dollar the broker gives and provides you 100

Then if you have 1,000 you will get a total of:

$1,000 * 100 = $100,000 dollars

Now you control $100,000 of Investment

Most new traders ask what leverage is best leverage for $1,000, or $2,000 dollars, or $5,000 dollars account? - Best leverage option to choose when registering a live account is always 100:1 and not 400:1.

What's Gold Margin?

Gold Margin is the amount of money required by your broker so as to allow you the trader to continue to trade with borrowed amount.

In other words/terms the question what's margin in XAU/USD? can be explained as the money required to cover open trade positions and is denoted/expressed in percent. For 100:1, the amount you will control is $100,000 dollars as presented in the above example.

Now can you compare a investor investing $1,000 with another one that is investing $100,000? Obviously Not. This is how it works: it takes you from that investor investing $1,000 dollars to that investing $100,000. Where does the extra money originate from? - You as a trader borrow it from your online xauusd trading broker in what is simply known as Leverage. This money which you borrow, you as a trader borrow it against the $1,000 of your capital that you as a gold trader deposit with your broker. If you were to explain what this leverage means - then it is the ability to control a large amount of money using very little of your own money and borrowing the rest. Otherwise, if you were trade without this leverage it wouldn't be as profitable as it is, in fact you as a trader can still choose and select not to use this leverage, using the 1:1 leverage option but you would not make money and it would take too long to make any trading profits.

Example of how to calculate leverage & margin:

XAU/USD Margin required in this case is $1,000 dollars (your money) if it's denoted/expressed as a percentage of $100,000 dollars in your account which you now control it is:

If leverage = 100:1

1,000 / 100,000 * 100= 1 %

Margin required = 1%

(1/100 *100= 1 %)

'Trade Forex Trading - Please simplify because I am a Beginner Trader Trader'

(Simplify - your equity is $1,000 after leverage you control $100,000 - $1,000 is what percent of $100,000 - it's 1 %) that's your account margin requirement for your account.

The margin example illustrated below, the set leverage option is 100:1, margin which is 1% is $2683.07, therefore the total sum controlled by trader is: $268,307 - this is because with this leverage the trader has used little of his money and borrowed the rest of the amount, with this set at 100:1 ratio, the online trader is using 1 % of their trading capital, this 1% equals to $2683.07 dollars, if 1% is equivalent to $2683.07 then 100% is equivalent to $268,307

Leverage Tutorial Guide - Margin Course - Explain What is Leverage? - Explain What is Margin?

MT4 Transactions Window Panel - Leverage and Margin Explained

If = 50:1 Leverage

Then margin requirement = 1/50 *100= 2%

If you have $1,000,

1,000* 50 = $50,000.

1,000 / 50,000 * 100= 2 percentage

(Simplify - your equity is $1,000 after leverage you control $50,000 - $1,000 is what percent of $50,000 - it's 2 %) that's your account margin requirement

If = 20:1 Leverage Ratio

Then the margin requirement = 1/20 *100= 5 %

If you've got $1,000 dollars,

1,000* 20 = $20,000.

1,000 / 20,000 * 100= 5 %

(Simplify - your capital is $1,000 after using leverage you now control $20,000 - $1,000 is what % of $20,000 - it's 5 %) that's your account margin requirement

If = 10:1 Leverage

Then the requirement is = 1/10 *100= 10%

If you have $1,000,

1,000* 10 = $10,000.

1,000 / 10,000 * 100= 10%

(Simplify - your equity is $1,000 after leverage you control $10,000 - $1,000 is what percent of $10,000 - it's 10%) that is your account margin requirement

What is Difference Between Maximum Leverage & the Leverage Used?

However, you should not that there is a difference between maximum leverage ( xauusd leverage given by your broker which is the highest leverage you as a trader can trade with if you choose to) & used leverage ( xauusd leverage based on the lots you have opened/open trades). One is the broker's (Maximum Leverage) and the other is trader's (Used Leverage). To explain this leverage concept we will use the example displayed above:

If your broker has issued you 100:1 Maximum Leverage Ratio, but you only open a trade position of $10,000 then Used Leverage is:

$10,000: $1,000 dollars (your money)

10:1

You've used 10:1 Leverage, but your max is still 100:1 Leverage. This means that even if you are given 100:1 Max Leverage Ratio or 400:1 Max Leverage Ratio, you do not have to use all of it. It is best to keep your used leverage to a maximum of 10:1 but you will still select & choose 100:1 max leverage ratio for your account. The extra leverage will give you as a gold trader what we call Free Margin, As long as you have Free margin on your account then your trade transactions won't get stopped out by your trading online broker because the margin requirement will remain above the required level.

When it comes to gold trading one of your rules: equity management guidelines on your trading plan should be to use leverage below 5:1.

In the above screenshot image examples, the online trader is using $2683.07, total controlled sum is $268,307 dollars, but trading equity is $16,116.55 dollars, therefore used trading leverage is ($268,307 divided by 16,116.55) = 16.64 : 1

16.64 : 1 Used Leverage Ratio

XAU/USD Margin accounts allows traders to control a large amount of xauusd units using little of their own while borrowing the rest

Obtaining this account will enable you to borrow money from the broker to trade gold lots with.

The amount of borrowing power your account provides you what is called ' xauusd leverage", & is mostly expressed as a ratio - a ratio of 100:1 leverage means you as a trader can control resources worth 100 times more than your deposit amount.

What this means in Gold terms is that with 1% margin in your trading account you as a gold trader can control a position worth $100,000 with $1,000 dollars deposit.

However, this account increases both the potential for profits & also losses. In you can never lose more than you invest, losses are limited to your deposits and generally brokers will close a trade position transaction which extends beyond your deposit amount by executing a margin call. Traders must hence try & keep their margin requirement level which is above that which is required. By using equity management guidelines/rules and keeping your used leverage below 5:1.

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