What is Leverage in Forex? - Forex Trading Leverage Definition
Forex Leverage & Margin Explained - Forex Trading Leverage Example
The definition of forex trading leverage is having the means to control a large amount of money using very little of your own money and borrowing the rest - this is what makes the currency market to attract many investors.
What does a forex leverage of 1 100 mean?
When Forex Trading using trading leverage it means that as a trader you can open trade positions which are larger than if you were using only the amount of money in your forex trading account without leverage.
With forex trading leverage you can use your money that's in your forex trading account to borrow from your forex trading broker through what's referred to as forex leverage. For examples if you have a forex trading account with $100 dollars - you can use your $100 and borrow using forex trading leverage of 1:100, which means that you will borrow $100 from your forex trading broker for every $1 in your forex account and after forex trading leverage you will have $100*(1:100 Leverage) = $10,000.
forex trading leverage is written in form of a ratio:
For example forex trading leverage 1:100 or 1:50 or 1:10
Sometimes the forex trading leverage can also be written as 100:1 or 50:1 or 10:1 depending on your forex trading broker.
This ratio just explains the amount of forex leverage whether it is written 100:1 or 1:100.
Leverage of 1:100 means you've borrowed using 1:100 and increased your trading capital 100 times.
Leverage of 1:50 means you have borrowed using 1:50 & increased your trading capital 50 times.
Leverage of 1:10 means you have borrowed using 1:10 and increased your trading capital 10 times.
Example:
We shall us this forex examples to explain what forex trading leverage is? If your forex trading broker gives you forex trading leverage of 100:1 (this is best option to select as the maximum forex trading leverage for any forex account)
This means you borrow 100 dollars for every dollar you have in your Forex Trading account.
To put in another way your broker gives you 100 dollars for every 1 dollar in your forex account. This is what's known as leverage.
This means if you open a forex account with $1,000 & your forex trading leverage is 100:1, then you'll get $100 for every $1 you that you have, the total amount which you'll control is:
If for 1 dollar the broker gives you 100
Then if you have 1,000 you'll get a total of:
$1,000 * 100 = 100,000 dollars
Now you control 100,000 dollars of capital in your forex account that you can open trades with
Most new forex traders ask what forex trading leverage is best for 100 dollars, or 500 dollars, or 1,000 dollars forex trading account? - The best option to select when opening a live Forex Trading account is always 100:1 and not 400:1.
About Forex Trading Leverage - Forex Trading with Leverage
The more forex trading leverage you use the greater the profit or loss
The less forex trading leverage you use the lesser the profit or loss
It is therefore better to use less forex leverage so that to minimize the risks involved. The higher the forex trading leverage used the higher the risk. This is one of the 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 2 standard lots for every $100,000 in their Forex Trading account.
To Learn More about Forex Leverage & Margin - Read the Topics Below:
Forex Leverage & Margin Described
