Trade Forex Trading

Leverage Example 1:100 - Example Leverage 1:100 or 1 Standard Lot

If you have a $1,000 account and can borrow 100 times that, you can buy at most 1 standard lot, which is like a 100,000 dollar Forex deal (1 Standard lot).

Let's evaluate Forex profits and losses based on three examples utilizing a leverage of $1,000.

  • 1 lot(1:100)

Note: This is the Leverage used, not the Maximum leverage. If a broker gives you 1:100 leverage, but you only trade 0.1 contract/lot, the leverage you use is 1:10. But if you trade 1 contract, then you'll use 1:100, which is the same as Maximum leverage (1:100).

So the illustration referred in this guide below is talking of the leverage used based on the volume of the trade transaction that you have opened.

Example 1: (1:100 Leverage or 1 Lot)

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:

1 lot

1 pip = $10

100 pips = 100 * 10 = $1000 dollars

Total = balance + profit

= 1000+ 1000

= $2,000 you've just doubled your account balance

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

1 lot

1 pip = $10 dollars

100 pips = 100 * 10 = $1000

Total = account balance - loss

Total= 1000 - 1000

Total = $ 0 you've just lost 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 profits & losses.

It is consequently advisable to utilize reduced leverage to mitigate associated risks. Higher leverage ratios correspond to greater inherent risk. A fundamental leverage guideline suggests avoiding leverage exceeding 1:5.

In trading leverage rules: It is advisable to keep below 1:10 leverage ratio which is also still high, most and many professional money managers use 1:2 leverage meaning that they only trade 2 contracts/lots for every $100,000 dollars in their account.

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