Forex Leverage Example 1:10 - Example Forex Leverage 1:10 or 0.1 Lots
If you have a 1,000 dollar Forex trading account with leverage 1:10 you can buy a maximum of 0.1 lots which is equal to 10,000 dollars Forex contract(0.1 Standard lots).
Let us calculate Forex profits and losses based on three examples of used leverage, based on $1,000 forex account:
- 0.2 lots (1:10)
NB: This is the Leverage used not the Maximum leverage, If a Forex broker gives you 1:10 leverage, but you only trade 0.1 lot the used leverage you are 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 that you have opened.
Example 3: (Leverage 1:10 or 0.1 Lots)
For 0.1 lots 1 pip equals $ 1
If you make a profit of 100 pips the profit in dollars is
0.1 lots
1 pip = $1
100 pips = 100 * 1 = $100
Total=balance + profit
= 1000+ 100
= $1,100
If you make a loss of 100 pips the loss in dollars is
0.1 lots
1 pip = $1
100 pips = 100 * 1 = $100
Total= account balance - loss
Total= 1000 - 100
Total= $900 you have just lost 10% of your forex 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 Forex leverage rules not to trade with more than 1:5 leverage.
In Forex leverage rules: It is always advisable to stay below 1:10 which is still high, most professional money managers use 1:2 meaning they trade only 2 lots for every $100,000 in their trading account.
