XAUUSD Leverage & Margin Explained
The definition of XAUUSD Trading Leverage is having ability to control a large amount of money using very little of your own money and borrowing the rest - this is what makes the xauusd market to attract many investors.
We shall explain xauusd leverage first & then explain xauusd margin in this learn how to calculate xauusd leverage and margin tutorial.
Example:
We shall us this example to explain what xauusd leverage is? If your broker gives you xauusd leverage of 100:1 (this is the best option to choose as the maximum xauusd leverage for any xauusd trading account)
This means you borrow 100 dollars for every dollar you have in your gold trading account.
To put in another way your xauusd broker gives you 100 dollars for every 1 dollar in your trading account. This is what is known as leverage.
This means if you open an account with $1,000 & your xauusd leverage is 100:1, then you get $100 for every $1 you that you have in your trading account, total amount that you'll control is:
If for 1 dollar the broker gives 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 dollars of Investment
Most new xauusd traders ask what xauusd leverage is best xauusd leverage for 1,000 dollars, or 2,000 dollars, or 5,000 dollars xauusd trading account? - The best xauusd leverage option to select when opening a live XAUUSD Trading account is always 100:1 & not 400:1.
What's Gold Trading Margin?
XAUUSD Trading Margin is the amount of money required by your broker so as to allow you to continue trading with borrowed amount.
In other words the question what's margin in XAUUSD? can be explained as the money required to cover open gold trades and is expressed in percentage. For 100:1, the amount you'll control is 100,000 dollars as explained 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 retail investor investing $1,000 to that investing $100,000. Where does this extra cash come from? - You borrow it from your xauusd broker in what's simply referred to as Leverage. This money that you borrow, you borrow it against the $1,000 dollar of your own money which you deposit with your gold broker. If you were to explain what this xauusd trading leverage means - then it is the ability to control a big amount of money using very little of your own money and borrowing the rest. Otherwise, if you were trade XAUUSD Trading without this leverage it would not be as profitable as it is, in fact you can still choose not to use leverage, using the 1:1 leverage option but you would not make money & it would take too long to make any profit.
Example of how to calculate gold leverage & margin:
XAUUSD Trading Margin required in this case is 1,000 dollars (your money) if it is expressed as a percent of 100,000 dollars in your xauusd account which you control it is:
If xauusd leverage = 100:1
1,000 / 100,000 * 100= 1%
Margin required = 1%
(1/100 *100= 1%)
'Trade Forex Trading - Please simplify because I am Beginner'
(Simplify - your capital is $1,000 after xauusd leverage you control $100,000 - $1,000 is what percent of $100,000 - it is 1%) that is your margin requirement for your gold trading account.
The xauusd trading margin example shown below, the set xauusd leverage is 100:1, the margin which is 1% is $2683.07, therefore the total amount controlled by the trader is: $268,307 - this is because with this leverage the trader has used little of his money & borrowed the rest, with this set at 100:1, the trader is using 1% of their capital, this 1% equals to $2683.07, if 1% is equal to $2683.07 then 100% is equal to $268,307
MetaTrader 4 Transactions Window Panel - Gold Leverage & 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%
(Simplify - your capital is $1,000 after xauusd leverage you control $50,000 - $1,000 is what percent of $50,000 - it is 2 %) that's your xauusd trading margin requirement
- If = 20:1 Leverage
Then the requirement = 1/20 *100= 5 %
If you have $1,000,
1,000* 20 = $20,000.
1,000 / 20,000 * 100= 5%
(Simplify - your trading capital is $1,000 after xauusd leverage you control $20,000 - $1,000 is what percentage of $20,000 - it is 5%) that is your xauusd trading 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 trading capital is $1,000 after xauusd leverage you control $10,000 - $1,000 is what percent of $10,000 - it's 10%) that is your xauusd trading margin requirement
What is Difference Between Maximum Gold Leverage & Used Leverage?
However, you should note that there is a difference between maximum xauusd trading leverage ( xauusd trading leverage given by your gold broker which is the highest xauusd leverage you can trade with if you select to) & used xauusd trading leverage ( xauusd leverage depending on the lots you've opened/open trades). One is the broker's (Maximum XAUUSD Leverage) and the other is trader's (Used Leverage). To explain this xauusd leverage concept we shall use xauusd example above:
If your xauusd broker has given you 100:1 Maximum XAUUSD Leverage, but you only open a trade of 10,000 dollars then Used XAUUSD Trading Leverage is:
10,000 dollars: 1,000 dollars (your money)
10:1
Your have used 10:1 Leverage, but your maximum is still 100:1 Leverage. This means that even if you're given 100:1 Maximum XAUUSD Leverage or 400:1 Maximum XAUUSD Leverage, you do not have to use all of it. It is best to keep your used xauusd trading leverage to a maximum of 10:1 but you will still choose 100:1 maximum xauusd leverage option for your trading account. The extra xauusd leverage will give you what we call Free XAUUSD Margin, As long as you have some Free margin on your xauusd account then your trades will not get closed by your gold broker because this margin requirement will remain above required level.
When it comes to xauusd trading one of your rules: money management rules on your trading plan should be to use xauusd trading leverage below 5:1.
In the above image examples, the trader is using $2683.07, total controlled amount is $268,307, but account equity is $16,116.55, therefore used xauusd leverage is ($268,307 divide by 16,116.55) = 16.64 : 1
16.64 : 1 Used Leverage
XAUUSD Trading Margin accounts allows traders to control a large amount of currency using little of their own while borrowing the rest
Obtaining this xauusd account will enable you to borrow money from the broker to trade gold trading lots with.
The amount of borrowing power your account gives you what is called "leverage", & is usually expressed as a ratio - a ratio of 100:1 leverage means you can control resources worth 100 times your deposit amount.
What this means in XAUUSD Trading terms is that with 1% margin in your xauusd account you can control a trade worth $100,000 with a $1,000 deposit.
However, Trading this xauusd account increases both potential for profits as well as losses. In XAUUSD Trading you can never lose more than you deposit, losses are limited to your deposits & usually brokers will close a transaction that extends beyond your deposited amount by executing a margin call. Traders must therefore try to keep their margin level above that required. By using money management rules & keeping your used leverage below 5:1.
