Best Forex Leverage - 1:100 Leverage Forex - Best forex leverage rules: It is Best to Stay below 10:1 Leverage
How Leverage Increases Forex Profits and Loses?
If you have a 10,000 dollar Forex trading account with leverage 100:1 you can buy a maximum of 10 lots which is equal to 1,000,000 dollars or 10 Forex contracts(10 Standard lot).
If you have a 10,000 dollar Forex trading account with leverage 400:1 you can buy a maximum of 40 lots which is equal to 4000,000 dollars or 40 Forex contracts(40 Standard lots).
Let us calculate Forex profits and losses based on two examples of used leverage, based on $10,000 forex account:
NB: This is the Leverage used not the Maximum leverage, If a Forex broker gives you 400:1 leverage, but you only trade 1 lot the used leverage you are using is 10:1, But if you trade 40 contracts then the leverage you will be using is 400:1 which is equal to Maximum leverage(400:1).
So the example referred in this below is talking of the leverage used based on the volume of the trade that you have opened.
Example 1: (400:1 Leverage or 40 Lots)
For 1 lot 1 pip equals $ 10
If you make a profit of 100 pips the calculation of profit in dollars is:
40 lots
1 pip = $400
100 pips = 100 * 400 = $40,000
Total= balance + profit
= 10,000+ 40,000
= $40,000 you have just doubled your trading account balance five times
If you make a loss of 20 pips the loss in dollars is
40 lots
1 pip = $400
20 pips = 20 * 400 = $8,000
Total= account balance - loss
Total= 10,000 - 8,000
Total = $ 2,000 you have just lost 80% of your trading account balance
Example 2: (100:1 Leverage or 10 Lots)
For 1 lot 1 pip equals $ 10
If you make a profit of 100 pips the calculation of profit in dollars is:
10 lots
1 pip = $100
100 pips = 100 * 100 = $10,000
Total= balance + profit
= 10,000+ 10,000
= $20,000 you have just doubled your trading account balance
If you make a loss of 20 pips the loss in dollars is
10 lots
1 pip = $100
20 pips = 20 * 100 = $2,000
Total= account balance - loss
Total= 10,000 - 2,000
Total = $ 8,000 you have just lost 20% of your trading account balance
Example 3: (10:1 Leverage or 1 Lot)
For 1 lot 1 pip equals $ 10
If you make a profit of 100 pips the calculation of profit in dollars is:
1 lots
1 pip = $10
100 pips = 100 * 10 = $1,000
Total= balance + profit
= 10,000+ 1,000
= $11,000 you have just added 10% profit to your trading account balance
If you make a loss of 20 pips the loss in dollars is
1 lots
1 pip = $10
20 pips = 20 * 10 = $200
Total= account balance - loss
Total= 10,000 - 200
Total = $ 9,800 you have just lost 2% of your trading account balance
From the above example you can see that the more leverage you use the greater the profits or losses and less you use the lesser the profit or losses.
It is therefore better to use less leverage so that to minimize the risks involved. The higher the leverage used the higher the risk. This is one of the best forex leverage rules not to trade with more than 5:1 leverage.
Best forex leverage rules: It is always advisable to stay below 10:1 which is still high, most professional money managers use 2:1 meaning they trade only 2 lots for every $100,000 in their Forex trading account.
