What is Difference Between Maximum Forex Leverage and Used Leverage?
You should note that there is a difference between maximum leverage (leverage given by your broker which is the highest leverage you can trade with if you choose to) and used leverage (leverage depending on the lots you have opened/open trades). One is broker's (Maximum) and other is trader's (Used). To explain this concept we shall use example above:
If your forex broker has given you 100:1 Maximum leverage, but you only open trading lots of 100,000 dollars then Used leverage is:
100,000 dollars : 10,000 dollars (your money)
10:1 Used Leverage
You have used 10:1 forex leverage, but your maximum leverage is still 100:1. This means that even if you are given 100:1 Maximum leverage or 200:1 Maximum leverage , you do not have to use all of it. It is best to keep your used leverage to a maximum of 10:1 but you will still choose 100:1 maximum leverage option for your trading account. The extra leverage will give you what we call Free Margin, As long as you have some Free margin on your trading account then your forex trades will not get closed by your forex trading broker because this margin requirement will remain above the required level.
When it comes to trading currencies one of your rules: money management rules on your forex trading plan should be to use below 5:1.
Forex Leverage Example
The example below, the set leverage is 100:1, the margin which is 1% is $2683.07, therefore the total amount controlled by trader is: $268,307 - this is because with this leverage the trader has used little of his money & borrowed the rest, with this set at 100:1, the trader is using 1 % of their capital, this 1% is equal to $2683.07, if 1% is equal to $2683.07 then 100% is $268,307
MetaTrader 4 Platform - What is the Difference Between Maximum Forex Leverage and Used Leverage?
In the above image example, trader is using $2683.07, total controlled amount is $268,307, but account equity is 16,116.55, therefore used leverage is ($268,307 divide by 16,116.55) = 16.64 : 1
16.64 : 1
In the forex account above even though the maximum leverage set forex trading leverage is 100:1, Used leverage is 16.64 : 1
