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 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

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

0.2 lots

1 pip = $2

100 pips = 100 * 2 = $200

Total=balance + profit

= 1000+ 200

= $1,200

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

0.2 lots

1 pip = $2

100 pips = 100 * 2 = $200

Total= 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 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.