Earlier in the article entitled Basic Concepts in the Forex Market, we briefly introduced the leverage. Now we will try to explain the matter to you in more detail and with examples.

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Leverage

Leverage,  leverage  or  leverage is  an important tool in  the Forex market  that is provided to traders by brokers or brokers so that traders or traders can enter a trade with larger amounts than their account balance. When   your trading account leverage is at 1: 100 (one in one hundred), you can enter into a $ 100 trade with a $ 1 account balance. In fact, it can be said that with a coefficient of 1: 100, the trading power of your account will be 100 times. Different brokers offer different amounts of leverage.

Example of leverage coefficient performance

Suppose you want to make a $ 1,000 deal. In this case, if your leverage is 1: 1000, only $ 1 balance is needed. If your leverage is 1: 100 you only need $ 10 balance and if it is 1: 500 you only need $ 2 balance in your account. In fact, you need to calculate how much volume you can enter into trading based on your account balance and the amount of leverage in the trading account.

Leverage, good or bad

Based on what has been said before, leverage or  leverage  gives you the power to trade multiple times your account balance. It is important to note that you also increase the risk of the transaction, ie your profit and loss. The fact that you can trade up to 500 times your capital, for example, naturally causes you to zero your account balance much faster with a small mistake and become so-called  margin margin  . The upper bouts featured two cutaways, for easier access to the higher frets.

You can not trade more than about 0.2 lots with a $ 200 account and a 1: 100 leverage. In this case, each pip price moves $ 2 gain or loss. In the same account, you can trade 2 lots with a leverage of 1: 1000, which means $ 20 per pip! Of course, if it moves in the direction you are analyzing, your profit will be huge, but if you make a mistake, your $ 200 account will be zero quickly and in a few moves!

The important point is that for every trade and the amount of pipe you make a profit or loss, the leverage or leverage has no effect on the value of each pipe. Many people think that if they make a profit of 10 pips and have a higher leverage, they will earn more dollars!

What is the leverage ratio?

It seems that based on the previous article and the examples given, you have realized how good and how bad this tool is! Now, how much this coefficient is depends on you, but as a recommendation, we can say to reduce this amount as much as possible, at least early in the work and with little experience. The minimum values   vary from broker to broker and may be 10, 25 or 50, which is a good place to start. After gaining experience and feeling that most of your trades are profitable, you can increase this amount to enter into trades with more volumes.

Leverage change

To change the amount of  leverage , you must log in to your broker site and change this amount in the details of your trading account or demo. Changing this value usually has two-step confirmations, ie it usually changes by sending a text message or email and entering the code sent. We hope we have been able to guide you on this very important topic to some extent. For more information, you can refer to  the Forex alphabet course  .

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