Leverage Definition
Gold Leverage Calculator
The meaning of leverage is having the means 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 many traders.
What does a leverage of 1 100 mean?
When Trading using leverage it means that as a trader you can open trade positions which are bigger than if you were using only the amount of money in your account without leverage.
With leverage you can use your money which's in your trading account to borrow from your broker through what's known as leverage. For example, if you have a account with $100 - you can use your $100 & borrow using the leverage ratio of 1:100, which means that you'll borrow $100 from your broker for every $1 in your account and after leverage you'll have $100*(1:100 Leverage) = $10,000.
leverage is written in the form of a ratio:
For example leverage 1:100 or 1:50 or 1:10
Sometimes the leverage ratio also can be written as 100:1 or 50:1 or 10:1 depending on your broker.
This ratio just illustrates the amount of leverage whether it's written 100:1 or 1:100.
Leverage of 1:100 means you have borrowed using 1:100 & increased your trading capital 100 times.
Leverage of 1:50 means you have borrowed using 1:50 and increased your trading capital 50 times.
Leverage of 1:10 means you've borrowed using 1:10 & increased your trading capital 10 times.
Example:
We will use this trading example to illustrate what leverage is? If your online broker assigns you leverage of 100:1 (this is the best option to choose as the maximum leverage for any account)
This means you borrow $100 dollars for every dollar you have in your account.
In other terms your online broker gives you $100 for every one dollar in your account. This is what's known as leverage.
This means that if you open a account with $1,000 & your leverage option is 100:1, then you get $100 for every $1 you that you have in your account, 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
Now you control 100,000 of capital in your trading account that you as a trader can open trades with
Most beginner traders ask which leverage is best for $100 dollars, or $500 dollars, or $1,000 account? - Best option to select when opening a live account is always 100:1 & not 400:1.
Trading with Leverage
The more leverage you as a trader use the greater the profit/loss
The less leverage you use the lesser the profits/losses
It's therefore better to use less leverage so as to minimize risks involved. The higher the leverage used the greater the risks. This is one of leverage guidelines not to trade with more than 5:1 leverage.
In leverage guidelines: It's always advisable to stay below 10:1 which is still high, most professional equity managers use 2:1 in their ++2trading account.
To Learn & Know More about Leverage and Margin - Read the Topics Below:
XAUUSD Leverage & Margin Explained
