Stocks Trading Leverage Formula
How to Calculate Leverage and Margin
The meaning of stocks 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 stock trading market to attract many investors - Stocks Trading Leverage Synonym - Stocks Trading Gearing.
What does stocks leverage ratio of 1:100 mean?
When Stocks Trading using trading leverage it means that as a trader you can open trades which are larger than if you were using only the amount of money in your trading account without stock trading leverage.
With stocks leverage you can use your money that's in your stocks account to borrow from your online stocks broker through what's referred to as stock trading leverage. For examples if you have a stocks account with $100 dollars - you can use your $100 & borrow using the stocks leverage of 1:100, which means that you'll borrow $100 from your stocks broker for every $1 in your stocks account and after leverage you will have $100*(1:100 Stocks Leverage Ratio) = $10,000.
Stocks Trading leverage is written in the form of a ratio:
For examples leverage ratio of 1:100 or 1:50 or 1:10
Sometimes the leverage ratio can also be written as 100:1 or 50:1 or 10:1 depending on the broker you are trading with.
This leverage ratio just explains the amount of stocks trading leverage whether it's written 100:1 or 1:100.
Stocks Trading leverage ratio of 1:100 means you have borrowed using 1:100 and increased your stocks 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 stocks capital 10 times.
Stocks Trading Leverage Examples:
We shall us this stocks example to explain what stocks leverage is? If your stocks broker gives you leverage of 100:1 (this is best option to select as the maximum stocks leverage for any stocks account)
This means you borrow 100 dollars for every dollar you've in your stock trading account.
To put in another way your stocks broker gives you 100 dollars for every 1 dollar in your stocks account. This is what is known as stock trading leverage.
This means if you open a stocks account with $2,000 and your leverage is 100:1, then you will get $100 for every $1 you that you have, the total amount of trading capital you will control is:
If for 1 dollar the broker gives you 100
Then if you have 2,000 you will get a total of:
$2,000 * 100 = 200,000 dollars
Now you control 200,000 dollars of capital in your stocks account that you can open stock trades with
Most new stocks traders ask what stocks leverage is best for 1000 dollars, or 5000 dollars, or 10,000 dollars stocks account? - The best option to choose when opening a live Stocks Trading account is always 100:1 & not 500:1.
About Stocks Leverage
The more stocks leverage you use the greater the profit or loss
The less stocks leverage you use the lesser the profit or loss
It is therefore better to use less stocks trading leverage so as to minimize risks involved. The higher the stocks leverage used the higher the risk. This is one of the stocks trading leverage rules and stocks trading money management guidelines not to trade with more than 5:1 stock trading leverage.
In Stocks Trading leverage money management guidelines: It is always advisable to use stocks leverage ratio below 10:1 which is still high, most professional money managers use stocks leverage ratio of 2:1 meaning they trade only 2% of their stock trading account.
To Learn about Stocks Leverage & Margin:
Stocks Trading Leverage Formula and Stocks Trading Margin Formula
