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