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How Do I Calculate Leverage in 1:50 and 1:100 - Leverage in Forex 1 50 and 1 100

How Leverage Increases Forex Trading Profits & Loses?

If you have $1,000 and can borrow 100 times that amount, you can buy at most 1 contract/lot, which is the same as a $100,000 contract (1 Standard lot).

If you have a 1,000 dollar account and can borrow 50 times that, you can buy at most 0.5 lots, which is like a 50,000 dollar deal (0.5 Standard lots).

Let's look at two examples demonstrating how profits and losses are calculated when leverage is applied to a $1,000 account.

Note: This refers to the leverage being used and not the maximum leverage. If an online broker offers a leverage of 100:1, but you trade 0.5 contracts, the leverage applied will be 50:1, which differs from the maximum leverage of 100:1.

The example in this guide talks about how much you can borrow based on the size of the trade you started.

Example 1: (50:1 Leverage or 0.5 Lots)

For 1 contract/lot, 1 pip is equivalent to $10

The computation of the trading profit in dollars, assuming a gain of 100 pips, is as follows:

0.5 lots

1 pip = $5

100 pips = 100 * 0.5 = $500

Total = balance + profit

= 1000+ 500

= $1,500 you've just made 50% profit on your account balance

If you lose 20 pips, the dollar loss is $20.

0.5 lots

1 pip = $5 dollars

20 pips = 20 * 5 = $100

Final Tally = account capital minus deficit

Total= 1000 - 100

Total = $ 900 you've just lost 10% of your account balance

Example 2: ( 100:1 Leverage )

Ten dollars is equal to one pip for one lot.

The calculation of trading profit in dollars if you earn 100 pips is as follows:

1 lot

1 pip = $10 dollars

Calculation: 100 pips equates to 100 multiplied by 10, equaling $1000.

Total = balance + profit

= 1000+ 1000

Equals $2,000, So You Doubled Your Account

If you lose 20 pips, the dollar loss is $20.

1 lot

1 pip = $10

20 pips = 20 * 10 = $200

Final Tally = account capital minus deficit

Total= 1000 - 200

The resulting balance is $ 800, indicating a loss equivalent to 20% of your current trading account equity.

You can see from the example above that if you use more leverage, your profits or losses will be bigger, and if you use less, they will be smaller.

It is thenceforth better for-you to use less leverage so that to reduce the risks involved. The higher the leverage ratio used the higher the risk. This is one of leverage guidelines not to use more than 5:1 leverage ratio.

Leverage recommendations in money management leverage guidelines: Most experienced professional fund managers nevertheless use 2:1 leverage, which means they only trade two lots for every $100,000 in their account. It is always advised to stay below 10:1 leverage, which is still a high level of leverage.

To Learn More About Margin and Leverage - Review the Subjects Listed Below:

Explanation of Leverage and Margin

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