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 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 on three examples 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 will use is 1:20 which is equivalent to Maximum leverage (1:20).

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 1:20 or 0.2 Lots)

For 0.2 lots 1 pip equals $2 dollars

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

0.2 lots

1 pip = $2 dollars

100 pips = 100 * 2 = $200

Total= trading account balance - loss

Total= 1000 - 200

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

From the above example you can see that the more leverage you use the greater the profits or losses & 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 guide-lines not to trade with more than 1:5 leverage option.

In trading leverage guide-lines: It is advisable to keep below 1:10 leverage 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 account.

Study More Tutorials & Topics:

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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)