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Leverage Definition

Leverage Calculator

Leverage refers to the ability to control a significantly larger amount of money while utilizing only a small portion of your own capital and borrowing the rest. This feature attracts many traders to the market.

What does a leverage ratio of 1 100 mean?

When Trading using leverage it means that you can open position positions which are bigger than if you were using only the amount of money in your trading account without leverage.

With leverage, you can use the money in your account to borrow from your broker using what is called xauusd/gold leverage. For example, if you have $100 in your gold account, you can borrow more using a 1:100 leverage, meaning for every $1 you have, you borrow $100 from your broker, so after leverage you have $100(1:100 Leverage) = $10,000.

leverage is represented in format of a ratio:

For exemplification leverage option 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 based on your trading broker.

The ratio just illustrates the amount of leverage whether it is written 100:1 or 1:100.

A leverage ratio of 1:100 implies that you have effectively multiplied your trading capital by a factor of 100 through borrowing.

A leverage ratio of 1:50 implies that you have effectively borrowed to augment your capital fifty times over.

A leverage of 1:10 signifies that you have borrowed capital, amplifying your trading power tenfold.

Example:

Take this XAUUSD case to grasp XAUUSD borrowing power. Brokers offer 100:1 as the top choice for accounts.

This indicates that you are borrowing $100 for every dollar available in your gold account.

To explain it differently, your online broker provides you with $100 for every dollar you have in your trading account. This idea is known as using leverage.

To illustrate your trading options, if you establish a gold account with $1,000 and opt for a leverage of 100:1, you're controlling a total amount of $100 for every $1 in your trading account.

If for $1 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

You now have control over $100,000 in your trading account for executing trades.

New XAU/USD traders often ask about suitable leverage ratios for accounts with $100, $500, or $1,000 balances. A 100:1 leverage ratio is typically recommended over higher options like 400:1.

Trading XAUUSD with Leverage

The more leverage you use the higher the profit/loss

The less leverage you use, the lesser the profit and loss

It is therefore wiser to employ reduced leverage for XAUUSD/gold to mitigate the inherent risks. Increased leverage options directly correspond to elevated risk levels. A guideline in leverage management suggests limiting XAUUSD trading leverage to no more than 5:1.

In gold trading rules, stay under 10:1 leverage. That level is still high. Most pro money managers stick to 2:1 in their accounts.

To Learn & Know More about Leverage & Margin - Learn the Topics Listed Below:

Leverage and Margin Explained

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