Forex Leverage for Beginner Traders - Calculate Forex Leverage Examples Explained
How Leverage Increases Forex Trading Profits and Loses? - Forex Leverage Calculator
If you have a 1,000 dollar Forex trading account with leverage 100:1 you can buy a maximum of 1 lot which is equal to 100,000 dollars contract(1 Standard lot).
Let us calculate Forex profits and losses based on three examples of used forex leverage, based on $1,000 Forex trading account:
- 1 lot(100:1)
- 0.5 lots(50:1)
- 0.2 lots(20:1)
NB: This is the Forex Leverage used not the Maximum forex leverage, If a Forex broker gives you 100:1 forex leverage, but you only trade 0.1 lot the used forex leverage you are using is 10:1, But if you trade 1 contract then the you will use is 100:1 forex leverage which is equal 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.
Forex Leverage for Beginner 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 forex 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 forex trading account balance
Forex Leverage for Beginner 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 forex trading account balance
Forex Leverage for Beginner 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 forex trading account balance
From the above Forex Leverage for Beginner 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 is therefore better to use less forex leverage so as to minimize the risks involved. The higher the forex leverage used the higher the risk. This is one of the Forex leverage rules not to trade with more than 5:1 forex trading 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 2 lots for every $100,000 in their trading 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 will have to go to your Secure My Account area on your forex broker website, sign in to this My Account Area & after login in navigate to the change leverage option for your MT4 forex trading account - then select new leverage that you want for your forex account & then confirm the new leverage option & your leverage will be changed to the new leverage option that you have just selected.
