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 a 1,000 dollar account with leverage 100:1 you as a trader can buy a maximum of 1 lot which is equal to $100,000 dollars contract(1 Standard lot).
If you have a 1,000 dollar account with leverage 50:1 you as a trader can buy a maximum of 0.5 lots which is equivalent to 50,000 dollars contract (0.5 Standard lots).
Let us calculate profits and losses based in 2 examples of used leverage, based on $1,000 dollars account:
NB: This is the Leverage used not the Maximum leverage, If a broker gives you 100:1, But if you trade 0.5 contracts then the leverage you'll use is 50:1 which isn't equal to Maximum leverage(100:1).
So the example referred in this guide below is talking of the leverage used based on the volume of the trade that you've opened.
Example 1: (50:1 Leverage or 0.5 Lots)
For 1 lot 1 pip equals $10
If you earn a profit of 100 pips the calculation of trading profit amount in dollars is:
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 make a loss of 20 pips the loss amount in dollars is
0.5 lots
1 pip = $5 dollars
20 pips = 20 * 5 = $100
Total= account balance - loss
Total= 1000 - 100
Total = $ 900 you've just lost 10% of your account balance
Example 2: ( 100:1 Leverage )
For 1 lot one pip equals $10 dollars
If you make a profit of 100 pips the calculation of trading profit amount in dollars is:
1 lot
1 pip = $10 dollars
100 pips = 100 * 10 = $1000
Total= balance + profit
= 1000+ 1000
= $2,000 you've just doubled your account balance
If you make a loss of 20 pips the loss amount in dollars is
1 lot
1 pip = $10
20 pips = 20 * 10 = $200 dollars
Total= account balance - loss
Total= 1000 - 200
Total = $ 800 you've just lost 20% of your trading account balance
From the above example you as a trader can see that the more leverage you use the greater the profits or losses and less you use the lesser the profit or loss.
It's therefore better to use less leverage so that to minimize the risks involved. The higher the leverage option used the higher the risk. This is one of leverage guidelines not to use more than 5:1 leverage ratio.
In money management leverage guidelines: It's always recommended to stay below 10:1 leverage which is still high, most and many professional experienced fund managers use 2:1 leverage meaning that they trade only two lots for every $100,000 in their account.
To Learn More about Leverage and Margin - Study the Topics Listed Below:
Leverage and Margin Described
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