What is Leverage in Forex? - Forex Trading Leverage Definition
Forex Leverage & Margin Explained - How to Calculate Forex Trading Leverage
The definition of forex leverage is having ability to control a large amount of money using very little of your own money & borrowing the rest - this is what makes the currency market to attract many investors.
What does a Forex leverage of 1 100 mean?
When Trading Forex using 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 forex trading leverage.
With forex leverage you can use your money that's in your forex trading account to borrow from your forex 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 leverage of 1:100, which means that you will borrow $100 from your forex broker for every $1 in your forex account and after forex leverage you will have $100*(1:100 Leverage) = $10,000.
Forex leverage is written in the forms of a ratio:
For example forex leverage 1:100 or 1:50 or 1:10
Sometimes the forex 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 have 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 leverage is? If your forex broker gives you forex leverage of 100:1 (this is best option to select as the maximum forex 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 is known as forex trading leverage.
This means if you open a forex account with $1,000 & your FX 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 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 account is always 100:1 and not 400:1.
About Forex Trading Leverage - Trading Forex with Leverage
The more forex leverage you use the greater the profit or loss
The less forex leverage you use the lesser the profit or loss
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 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 trading account.
To Learn More about Forex Leverage and Margin - Read the Topics Below:
Forex Leverage & Margin Described
