Best Leverage - 1:100 Leverage Forex - Best leverage rules: It is Best to Stay below 10:1 Leverage
How Leverage Increases Profits & Loses?
If you have a $10,000 Forex account with 100:1 leverage, you can buy up to 10 lots, which is $1,000,000, or 10 contracts (10 Standard lots).
With a $10,000 forex account at 400:1 leverage, buy up to 40 lots. That equals $4,000,000 or 40 standard lots.
Let's calculate profits and losses using two examples of leverage, based on a $10,000 account:
Note: This refers to used leverage, not the max. If a broker offers 400:1 leverage and you trade 1 lot, your used leverage is 10:1. Trade 40 lots, and it hits 400:1, the full max.
So the illustration referred in this tutorial guide below is talking of the leverage used based on the volume of the trade transaction that you've opened.
Example 1: (400:1 Leverage or 40 Lots)
For 1 contract/lot 1 pip equals $10
If you make a profit of 100 pips, the calculation of the profit in terms of dollars is:
40 lots
1 pip = $400 dollars
100 pips = 100 * 400 = $40,000
Total = balance + profit
= 10,000+ 40,000
= $40,000 you've just doubled your trading account balance five times
If you accrue a loss of 20 pips the loss amount in dollars is
40 lots
1 pip = $400 dollars
20 pips = 20 * 400 = $8,000
Total = account balance - loss
Total= 10,000 - 8,000
Total = $ 2,000 you've just lost 80% of your account balance
Example 2: (100:1 Leverage or 10 Lots)
For 1 lot one pip equals $10 dollars
If you make a profit of 100 pips, the calculation of the profit in terms of dollars is:
10 lots
1 pip = $100 dollars
100 pips = 100 * 100 = $10,000
Total = balance + profit
= 10,000+ 10,000
= $20,000 you've just doubled your account balance
If you accrue a loss of 20 pips the loss in dollars is
10 lots
1 pip = $100 dollars
20 pips = 20 * 100 = $2,000
Total = account balance - loss
Total= 10,000 - 2,000
Total = $ 8,000 you've just lost 20% of your trading account balance
Example 3: (10:1 Leverage or 1 Lot)
For 1 lot one pip equals $10 dollars
If you make a profit of 100 pips, the calculation of the profit in terms of dollars is:
1 lots
1 pip = $10
100 pips = 100 * 10 = $1,000
Total = balance + profit
= 10,000+ 1,000
= $11,000 you've just added 10% profit to your account balance
If you make a loss of 20 pips the loss amount 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've 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 & less you use the lesser the profit or loss.
Use lower leverage to cut risks. Higher ratios increase danger. A key rule is to stick under 5:1 leverage.
Best tip on leverage: Stick under 10:1, which is still a lot. Pros often use 2:1. That means they trade two lots per $100,000 in their account.
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