Leverage Example 1:10 - Example Leverage 1:10 or 0.1 Lots

If you have a 1,000 dollar account with leverage 1:10 you can buy a maximum of 0.1 lots which is equal to 10,000 dollars contract(0.1 Standard lots).

Let us calculate Forex profits & losses based on three examples of used leverage, based on $1,000 trading account:

0.2 lots (1:10)

NB: This is the Leverage used not the Maximum leverage, If a broker gives you 1:10 leverage, but you only trade 0.1 lot the used leverage you're using is 1:10, - if you trade 0.1 contract then the you will use is 1:10 which is equal to Maximum leverage (1:10).

So the example referred in this below is talking of the leverage used based on the volume of the trade which you have opened.

Example 3: (Leverage 1:10 or 0.1 Lots)

For 0.1 lots 1 pip equals $ 1

If you earn a profit of 100 pips the profit in dollars is

0.1 lots

1 pip = $1

100 pips = 100 * 1 = $100 dollars

Total=balance + profit

= 1000+ 100

= $1,100

If you accrue a loss of 100 pips the loss in dollars is

0.1 lots

1 pip = $1 dollars

100 pips = 100 * 1 = $100 dollars

Total= account balance - loss

Total= 1000 - 100

Total= $900 you have just lost 10% of your 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 loss.

It's therefore better to use less leverage so as to cap the risks involved. The greater the leverage ratio used the greater the risks. This is one of the leverage guide-lines not to trade with more than 1:5 leverage ratio.

In money management leverage guidelines: It's always recommended to stay below 1:10 ratio which's also still high, most professional money managers use 1:2 meaning they trade only two lots for every $100,000 dollars in their trading account.

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Leverage Example 1:10 - Example Leverage 1:10 or 0.1 Lots

Example 3: (Leverage 1:10 or 0.1 Lots)