Leverage in Forex: basics
I'd like to learn about leverage.
More about leverage and lot, pls do talk on this
Sure, we will.
When opting for a leverage, make sure you know what margin requirement is set for it. Different Forex brokers may have different margin requirements for the same 1:100 leverage.
It is important to understand the meaning of both terms before trading live.
Leverage - the ratio of investment to actual value. A leverage of 1:100 means a trader can buy a Forex contract of $1000 by paying $10.
Before allowing a new trade, the system checks that a trader has a minimum deposit required to open a new contract. If there is not enough funds (real funds including current floating losses and profits) to open a new contract, the platform won't allow any new trades, except for closing existing ones.
When a new trade is open it reflects in Used Margin column.
Used Margin - the deposit temporarily withdrawn from/blocked on the client account as collateral to cover any losses which may occur as a result of trading. When a trade is closed, it is returned back.
The rest is Available Margin.
Available Margin - limits the size of positions a trader can open and will affect when a trader is going to receive a margin call.
When your floating account balance (final balance after adding all floating profits and deducting all floating losses as per current minute) becomes equal to Used Margin due to recent losses, a Margin Call is received - brokers' trading platform begins to liquidate all (or few) running trading positions to ensure that you don't spend more than you have invested.
Also note, that majority of Forex brokers provide traders with huge demo accounts of $50 000, where noticing any significant influence of "leverage-margin" effect is difficult unless you set a goal to do so. Large demo account offers plenty of funds, which will keep all worries away for a long time; hopefully long enough for a trader to believe in his/her trading success and consider live Forex trading. Our advice is, if possible, look for a demo account of $1000-5000 or so, where you'll be able to feel and trace the working mechanism of leverage and margin.
Would you like to add your own comment or ask another question?
Discussions speed up learning. Let's talk..
How to calculate MARGIN CALL?
Margin call occurs when your Account equity (current balance +- all floating profits/losses you keep in open trades) is equal or less than your Used Margin.
See the topic about Margin Call Formula
Try also this Money management calculator to see how it works.
is there a trail or stop system in forex as in stock?
Absolutely.
Majority of Forex Trading platforms offer trading with Trailing stops.
hello,pls. i need advice i start trading wit 200 usd up to 3 times but all the three i loss.even my initial balance i loss it,i loss more than 600 usd plz what is your advise to me.
what does it means to hold onto a losing trade for too long?
Lets say a "trader" invests $200 in an account, with leverage of 1:100.. He is granted $20,000 to trade with, without proper use of "stop loss" can the "trader" ever lose more than his investment of $200.
Also, the proffit made using the $20,000 when it comes timeto withdraw after funds reaching $20,600, what will be the traders withdrawel amount? Is it the $600 proffit or the original $200 plus the extra 400 but devided back down to $4 as proffit was made using a leverage??
Thanks.