Leverage for New Traders - Calculate Forex Leverage Examples Explained
How Leverage Increases Forex Profits and Loses? - Leverage Calculator
If you have a 1,000 dollar account with leverage 100:1 you as a trader can buy a maximum of 1 lot which is equivalent to 100,000 dollars contract(1 Standard lot).
Let us calculate Forex profits & losses based on three examples of used leverage, based on $1,000 account:
- 1 lot(100:1)
- 0.5 lots(50:1)
- 0.2 lots(20:1)
NB: This is the Leverage used not the Maximum leverage, If a online broker gives you 100:1 leverage, but you only trade 0.1 lot the used leverage you're using is 10:1, But if you trade 1 contract then the you will use is 100:1 leverage which is equivalent to Maximum leverage (100:1).
So the example referred in this below is talking of the leverage used based on the volume of the trade that you have opened.
Leverage for New Traders - Example 1: (100:1 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 trading 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 account balance
Leverage for New Traders - Example 2 :(50:1 Leverage or 0.5 Lots)
For 0.5 lots 1 pip equals $ 5
If you make a profit of 100 pips the profit in dollars is
0.5 lots
1 pip = $5
100 pips = 100 * 5 = $500
Total= balance + profit
= 1000+ 500
= $1,500
If you make a loss of 100 pips the loss in dollars is
0.5 lots
1 pip = $5
100 pips = 100 * 5 = $500
Total= account balance - loss
Total= 1000 - 500
Total= $500 you have just lost half of your account balance
Leverage for New Traders - Example 3: (Leverage 20:1 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 0.2 of your account balance
From the above Forex Leverage for New Traders 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 therefore better to use less leverage to minimize risks involved. The higher the leverage used the greater the risks. This is one of Forex leverage rules not to trade with more than 5:1 leverage.
In Forex leverage rules: It is always advisable to stay below 10:1 which is still high, most professional money managers use 2:1 meaning they trade only two lots for every $100,000 in their account.
How to Change Leverage on MT4
How to Change Leverage on MT4 - To change leverage that you're using on your MT4 platform you'll have to go to your Secure My Account area on your broker website, sign in to this My Account Area & after login in navigate to the change leverage ratio for your MT4 account - then select new leverage that you as a trader want for your account and then confirm the new leverage option and your leverage ratio will be changed to the new leverage option that you have just selected.
