How Do I Calculate Leverage in 1:200 and 1:100 Leverage Ratio
How Leverage Increases Profits & Loses?
If you have a $1,000 account with leverage 100:1 you can buy a maximum of 1 contract/lot which is equal to $100,000 dollars contract(1 Standard lot).
If you have $1,000 in your account with 200:1 leverage, you can buy up to 2 lots, which equals a $200,000 contract (2 standard lots).
Let's quantify potential profits and losses using two distinct leverage scenarios, assuming an initial trading account balance of $1,000:
Please note: This refers to the Leverage actively utilized, not the Maximum available leverage. If an online broker extends 200:1 leverage but you act on a single contract/lot, your deployed leverage is 100:1. However, if you trade two contracts, the leverage employed becomes 200:1, equating to the ceiling of available leverage (200:1).
So the illustration referred in this guide below is talking of the leverage used based on the volume of the trade transaction which you've opened.
Example 1: (200:1 Leverage or 2 Lots)
For 1 lot 1 pip equals $10 dollars
If you make a profit of 100 pips, the calculation of the profit in terms of dollars is:
2 lots
1 pip = $20
100 pips = 100 * 20 = $2,000
Total = balance + profit
= 1000+ 2000
= $3,000 you've just doubled your account balance three times
If you make a loss of 20 pips the loss amount in dollars is
2 lots
1 pip = $20
20 pips = 20 * 20 = $400
Total = account balance - loss
Total= 1000 - 400
Total = $ 600 you've just lost 40% of your account balance
Example 2: (100:1 Leverage)
For 1 contract/lot 1 pip equals $10
If you make a profit of 100 pips, the calculation of the profit in terms of dollars is:
1 lot
1 pip = $10
100 pips = 100 * 10 = $1000 dollars
Total = balance + profit
= 1000+ 1000
= $2,000 you've just doubled your trading account balance
If you accrue a loss of 20 pips the loss amount in dollars is
1 lot
1 pip = $10 dollars
20 pips = 20 * 10 = $200
Total = account balance - loss
Total= 1000 - 200
Total = $ 800 you've just lost 20% of your account balance
From the above example you can see the more leverage you use the greater the profits or losses and less you use the lesser the profits & losses.
Consequently, employing minimal leverage is preferable to mitigate the inherent risks. Greater leverage ratios result in elevated risks. A key principle regarding leverage dictates avoiding leverage exceeding a 5:1 ratio for trading activities.
MACD spots trend momentum. Levels above the 50 centerline mean XAUUSD trends up. Below it, the trend heads down.
To Learn More about Leverage and Margin - Read the Tutorials Listed Below:
Leverage & Margin Discussed
More Tutorials and Topics:
- What's the Pip Value for CHFHKD FX Pair?
- How to Use MT5 Linear Regression Indicator
- FX Candles Charts, Line Charts and Bar Charts
- How to Open a Trade Chart in MetaTrader 4 Trading
- How Do I Trade Index in MetaTrader 5 Software?
- Which Forex Currency Pair is the Most Active in?
