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

If you have a 1,000 dollar account with leverage 1:100 you can buy a maximum of 1 standard lot which is equal to 100,000 dollars Forex contract(1 Standard lot).

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

• 1 lot(1:100)

NB: This is the Leverage used not the Maximum leverage, If a broker gives you 1:100 leverage, but you only trade 0.1 lot the used leverage you're using is 1:10, But if you trade 1 contract then the you will use is 1:100 which is equal to Maximum leverage (1:100).

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: (1:100 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 lot

1 pip = $10

100 pips = 100 * 10 = $1000

Total= balance + profit

= 1000+ 1000

= $2,000 you have just doubled your forex account balance

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

1 lot

1 pip = $10

100 pips = 100 * 10 = $1000

Total= account balance - loss

Total= 1000 - 1000

Total = $ 0 you have just lost your forex 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's hence better to use less leverage so that to minimize the risks involved. The higher the leverage used the greater the risks. This is one of leverage rules not to trade with more than 1:5 leverage.

In leverage rules: It's 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.