Leverage Example 1:20 - Example Leverage 1:20 or 0.2 Lots

If you have a 1,000 dollar account with leverage 1:20 you as a trader can buy a maximum of 0.2 lots which is equal to 20,000 dollars contract(0.2 Standard lots).

Let us calculate profits and losses based in 3 illustrations of used leverage, based on $1,000 dollars account:

0.2 lots (1:20)

NB: This is the Leverage used not the Maximum leverage, If a broker gives you 1:20 leverage, but you only trade 0.1 lot the used leverage you are using is 1:10, But if you trade 0.2 contract then the you'll use is 1:20 which is equivalent to Maximum leverage (1:20).

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

Example 3: (Leverage 1:20 or 0.2 Lots)

For 0.2 lots 1 pip equals $2 dollars

If you make a profit of 100 pips the profit amount in dollars is

0.2 lots

1 pip = $2 dollars

100 pips = 100 * 2 = $200

Total=balance + profit

= 1000+ 200

= $1,200 dollars

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

0.2 lots

1 pip = $2 dollars

100 pips = 100 * 2 = $200

Total= account balance - loss

Total= 1000 - 200

Total= $800 you've just lost 20% of your account balance

From the above example you as a trader can see the more leverage you use the greater the profits or losses and less you use the lesser the profit/losses.

It is henceforth better to use less leverage so that to cap the risks involved. The greater the leverage ratio used the greater the risks. This is one of the leverage rules not to trade with more than 1:5 leverage ratio.

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 trade only two lots for every $100,000 dollars in their account.

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Leverage Example 1:20 - Example Leverage 1:20 or 0.2 Lots

Example 3: (Leverage 1:20 or 0.2 Lots)