Forex Leverage Example 1:50 - Example Leverage 1:50 or 0.5 Lots
If you have a 1,000 dollar account with leverage 1:50 you as a trader can buy a maximum of 0.5 lots which is equal to 50,000 dollars contract(0.5 Standard lots).
Let us calculate profits and losses based in 3 examples of used leverage, based on $1,000 trading account:
- 0.5 lots (1:50)
NB: This is the Leverage used not the Maximum leverage, If a broker gives you 50:1 leverage, but you only trade 0.1 lot the used leverage you are using is 1:10, But if you trade 0.5 contract then the you will use is 1:50 which is equivalent to Maximum leverage (1:50).
So the example illustration referred in this tutorial below is talking of the leverage used based on the volume of the FX trade which you have opened.
Example 2 :(1:50 Leverage or 0.5 Lots)
For 0.5 lots 1 pip equals $5 dollars
If you make a profit of 100 pips move the profit in terms of dollars is
0.5 lots
1 pip = $5 dollars
100 pips = 100 * 5 = $500
Total= balance + profit
= 1000+ 500
= $1,500 dollars
If you make a loss of 100 pips the loss amount in dollars is
0.5 lots
1 pip = $5
100 pips = 100 * 5 = $500 dollars
Total= account balance - loss
Total= 1000 - 500
Total= $500 you've just lost half of your trading account balance
From the above example you as a trader can see that the more leverage you use the greater the profits or losses and less you use the lesser the profit or loss.
It's therefore better to use less leverage so as to cap the risks involved. The greater the leverage ratio used the greater the risks. This is one of the leverage guidelines not to trade with more than 1:5 leverage ratio.
In money management leverage guidelines: It's always recommended to stay below 1:10 ratio which is also still high, most and many professional experienced 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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