What Is Oil Trading Leverage for Beginners?

The definition of Oil Leverage is having the ability to control a big amount of money using very little of your own money and borrowing the rest - this is what makes the oil market to attract many crude oil traders.

We shall explain oil leverage first & then explain oil margin in this learn how to calculate crude oil leverage and margin oil tutorial.

Oil Trading Example:

We shall us this crude oil trading example to explain what oil leverage is? If your oil broker gives you oil leverage ratio of 100:1 (this is the best option to select as the maximum oil leverage for any oil trading account)

This means you borrow 100 dollars for every dollar you've in your oil trading account.

To put in another way your oil broker gives you 100 dollars for every 1 dollar in your crude oil trading account. This is what's referred to as oil trading leverage.

This means if you open a oil trading account with $1,000 & your oil leverage ratio is 100:1, then you'll get $100 for every $1 you that you have, the total amount that you will control is:

If for 1 dollar the broker gives you 100

Then if you have 1,000 in your crude oil trading account you will get a total of:

$1,000 * 100 = 100,000 dollars

Now you control 100,000 dollars of Capital after oil leverage

Most new oil traders ask what oil leverage is best for 2,000 dollars, or 5,000 dollars, or 10,000 dollars oil account? - The best oil leverage ratio to select when opening a live Oil Trading account is always 100:1 & not 500:1.

What is Crude Oil Trading Margin?

Crude Oil Trading Margin is the amount of money required by your oil broker so as to allow you to continue oil trading with the borrowed amount - leveraged amount.

In other words the question what is margin in Oil Trading? can be explained as the money required by your oil broker to cover open crude oil trades and is expressed as a percentage. For 100:1 leverage, the amount you will control is 100,000 dollars as explained in the oil example above.

Now can you compare an investor investing $1,000 with another investor investing $100,000? Obviously Not. This is how leverage works in oil trading, it takes you from that guy investing $1,000 to that one investing $100,000. Where does this extra money come from? You borrow from your oil broker in what is simply known as Oil Trading Leverage. This money that you borrow from your oil broker, you borrow it against the $1,000 dollar of your own money that you deposit with your oil broker in your oil account. If you were to define what this oil leverage means - then leverage is the ability to control a large amount of money using very little of your own money and borrowing the rest. Otherwise, if you were trade oil without this oil leverage it would not be as profitable as it is, in fact you can still select not to use oil leverage, using the 1:1 leverage ratio but you would not make money it would take too long to make any oil profit.

Example of how to calculate crude oil leverage and oil trading margin:

Oil Margin required in this case is 1,000 dollars (your money) if it's expressed as a percentage of 100,000 dollars in your oil account which you control it is:

If oil leverage ratio = 100:1

1,000 / 100,000 * 100= 1%

Crude Oil Trading Margin required = 1%

(1/100 *100= 1%)

"Trade Forex Trading - Please simplify because I am a Oil Trading Beginner"

(Simplify - your oil capital is $1,000 - after oil leverage you now control $100,000 - $1,000 is what percent of $100,000 - it's 1 %) that's your oil margin requirement for your crude oil trading account.

The oil trading margin example explained below, the set oil leverage ratio is 100:1, the oil margin which is 1% is $2683.07, therefore the total amount controlled by the trader is: $268,307 - this is because with this leverage the trader has used little of his money and borrowed the rest, with this leverage ratio set at 100:1, the trader is using 1% of their capital, this 1% is equivalent to $2683.07, if 1% is equal to $2683.07 then 100% is $268,307

MT4 Transactions Panel - What is Oil Trading Leverage for Beginners? - Do You Have To Use Leverage In Oil Trading?

• If = 50:1 Oil Trading Leverage Ratio

Then oil trading margin requirement = 1/50 *100= 2 %

If you have $1,000,

1,000* 50 = $50,000.

1,000 / 50,000 * 100= 2%

(Simplify - your oil trading capital is $1,000 after oil leverage you control $50,000 - $1,000 is what percentage of $50,000 - it's 2%) that is your oil trading margin requirement

• If = 20:1 Oil Trading Leverage Ratio

Then the oil margin requirement = 1/20 *100= 5 %

If you have $1,000,

1,000* 20 = $20,000.

1,000 / 20,000 * 100= 5%

(Simplify - your oil trading capital is $1,000 after oil leverage you control $20,000 - $1,000 is what percent of $20,000 - it is 5 %) that's your trading oil margin requirement

• If = 10:1 Oil Trading Leverage Ratio

Then the oil margin requirement is = 1/10 *100= 10%

If you have $1,000,

1,000* 10 = $10,000.

1,000 / 10,000 * 100= 10%

(Simplify - your trading oil capital is $1,000 after oil leverage you control $10,000 - $1,000 is what percent of $10,000 - it is 10 %) that's your oil margin requirement

What is The Difference Between Maximum Crude Oil Trading Leverage & Used Oil Trading Leverage?

However, you should note that there is a difference between maximum oil trading leverage (trading oil leverage given by your oil trading broker which is the highest oil leverage ratio you can trade with if you choose to) and used oil trading leverage ( oil leverage depending on the oil lot size you have opened - open trade lots positions). One is the broker's (Maximum Crude Oil Trading Leverage Ratio) and the other is oil trader's (Used Leverage Ratio). To explain this trading oil leverage concept we shall use the oil example above:

If your oil broker has given you 100:1 Maximum Crude Oil Trading Leverage Ratio, but you only open a trade of 10,000 dollars then Used Oil Trading Leverage is:

10,000 dollars: 1,000 dollars (your money)

10:1

Your have used 10:1 Oil Trading Leverage Ratio, but your maximum leverage ratio is still 100:1 Leverage. This means that even if you are given 100:1 Maximum Oil Trading Leverage Ratio or 500:1 Maximum Crude Oil Trading Leverage Ratio, you do not have to use all of it. It is best to keep your used oil leverage ratio to a maximum of 10:1 oil leverage but you will still select 100:1 maximum oil leverage ratio for your oil trading account. The extra oil leverage will give you what we call Free Crude Oil Margin, As long as you have some Free margin on your oil trading account then your crude oil trades will not get closed by your oil trading broker because this margin requirement will remain above the required level based on the free margin in your oil trading account.

When it comes to crude oil trading - one of your rules: oil money management guidelines on your oil trading plan should be to use oil leverage ratio of below 5:1.

In the above oil example, the trader is using $2683.07, the total controlled amount is $268,307, but oil account equity is $16,116.55, therefore used oil leverage is ($268,307 divide by 16,116.55) = 16.64 : 1

16.64 : 1 Used Oil Trading Leverage Ratio

Oil Trading margin accounts allow crude oil traders to control a big amount of currency using little of their own money while borrowing the rest

Obtaining this oil margin account will enable you to borrow money from the broker to trade oil trading lots with.

The amount of borrowing power your margin oil trading account gives you what is called "leverage", & is usually expressed as a ratio - a leverage ratio of 100:1 means you can control resources worth 100 times your deposit.

What this means in oil trading terms is that with 1 % margin in your oil account you can control one standard oil lot or 1 oil contract worth $100,000 with a $1,000 deposit.

However, trading on this margin oil trading account increases both potential for oil profits as well as oil losses. In oil trading you can never lose more than you invest, oil losses are limited to your deposits and usually oil brokers will close a oil trade transaction that extends beyond your deposit amount by executing a oil margin call. Oil traders must therefore try to keep their oil margin level above that required by their oil broker. By using oil money management guidelines and keeping your used oil leverage ratio below 5:1.

What Is Oil Trading Leverage for Beginners? - Do You Have To Use Leverage In Oil Trading? - Leverage in Oil Trading - Crude Oil Trading Leverage Example - Oil Trading Leverage And Margin Explained - Crude Oil Trading Leverage Calculator