What's Leverage in Oil Trading?
Crude Oil Trading Leverage Calculator
The definition of oil leverage is having the means to control a large amount of money using very little of your own money and borrowing the rest - this is what makes the crude oil market to attract many investors.
What does a Oil leverage of 1 100 mean?
When Oil Trading using oil trading 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 oil account without leverage.
With oil leverage you can use your money that is in your crude oil trading account to borrow from your oil broker through what is known as oil leverage. For examples if you have a oil trading account with $100 dollars - you can use your $100 & borrow using the oil leverage of 1:100, which means that you'll borrow $100 from your oil broker for every $1 in your crude oil trading account & after oil leverage you will have $100*(1:100 Leverage) = $10,000.
Oil Trading oil leverage is written in the forms of a ratio:
For example oil leverage 1:100 or 1:50 or 1:10
Sometimes the oil leverage ratio can also be written as 100:1 or 50:1 or 10:1 depending on your crude oil broker.
This ratio just explains the amount of oil leverage whether it's written 100:1 or 1:100.
Leverage of 1:100 means you've borrowed using 1:100 & 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 & increased your trading capital 10 times.
Example:
We shall us this crude oil trading example to explain what oil leverage is? If your oil broker gives you oil leverage of 100:1 (this is the best option to choose as the maximum oil leverage for any oil account)
This means you borrow 100 dollars for every dollar you've in your Oil Trading account.
To put in another way your broker gives you 100 dollars for every 1 dollar in your oil account. This is what is known as leverage.
This means if you open a oil trading account with $1,000 & your crude oil leverage is 100:1, then you will get $100 for every $1 you that you've, the total amount that you will control is:
If for 1 dollar the broker will give you 100
Then if you have 1,000 you will get a total of:
$1,000 * 100 = 100,000 dollars
Now you control 100,000 dollars of capital in your crude oil account that you can open trades with
Most new oil traders ask what oil leverage is best for 100 dollars, or 500 dollars, or 1,000 dollars oil trading account? - The best option to choose when opening a live Oil Trading account is always 100:1 & not 400:1.
About Crude Oil Trading Leverage
The more oil trading leverage you use the greater the profits or losses
The less oil leverage you use the lesser the profits or losses
It is therefore better to use less oil trading leverage in order to minimize the risks involved. The higher the oil leverage used the higher the risk. This is one of the Oil Trading oil trading leverage rules not to trade with more than 5:1 leverage.
In Oil Trading oil trading leverage rules: It is always advisable to stay below 10:1 which is still high, most professional money managers use 2:1 in their Oil Trading account.
To Know More about Oil Leverage & Margin - How to Read the Topics Below:
Oil Trading Leverage & Margin Explained
