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Thread: EXPLAIN LEVERAGE

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    Default EXPLAIN LEVERAGE

    Do you have an idea about what is leverage? Here, we are trying to explain leverage. It is basically defined as exchanging a certain amount of money, which is needed while doing an investment. As far as Forex is concerned, that amount of money is generally exchanged from a broker. Forex trading offers high leverage for a preliminary margin requirement. In order to calculate margin-based leverage, you need to divide the total value of transaction by the total margin amount you need to put. One of the main reasons why large numbers of people are attracted to Forex trading rather than other financial instruments is that with Forex trading an individual has high chances of attaining a high leverage than they would have in stocks.

    In Forex, most of the investors use leverage to attain profit from the fluctuations in the rate of exchange between two different currencies. The leverage that is attainable in the Forex trading market is regarded as the highest one that an investor can attain. Leverage is also defined as a loan that is offered by a broker who handles their own Forex account. When an investor takes a decision to make in investment in the Forex market, the first and the foremost important thing they should do is to open a margin account with a broker.

    Generally, the amount of trading leverage offered is either 500:1, 100:1 and 200:1 based on broker and size of the position where the investor is continuing trading. Standard trading usually done on 100,000 currency units, so for doing a trade of this particular size, the leverage offered is generally 50:1 or 100:1. Most of the times, leverage of 200:1 is used for positions like 50,000 dollar or less than that.

    Risks Associated With Excessive Leverage
    Real leverage has the ability to maximize gains or losses with the same magnitude. More amount of leverage you apply on your capital, higher will be the risks. You should keep in mind that it is not necessary that this risk is always related with the margin-based leverage even though it can have influences on a trader if he or she is not very careful.

    Benefits of Leverage
    Considering the fact that you can do trading up to 200 times of your money, one of the major benefits of Leverage is that you can make huge gains even if you do not have a large amount of money. For instance, with a maximum 400:1 leverage and 0.25% movement in your way, you can simply double the amount in your account. Therefore, when a person is correct about a trade, leverage will really help them achieve huge benefits. The best and in fact the unique thing about Forex market is that no other trading market in this world provides so much amount of leverage. This is the main reason why Forex is attracting so many traders.

    With a small amount of leverage applied on every trade, you can afford to offer your trade a bit more space by setting a wide stop and also avoid risks associated with the market changes. A trade with high leverage can at fast rate deplete one’s trading account if it goes against them, as they will have to suffer huge losses because of huge lot sizes. Always keep in mind that leverage is entirely flexible and can be customized according to the specific needs of a trader. Having an objective of trading profitably is not related to the act of making millions by the end of the month or year.

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    Yes, using leverage we will be able to trade with bigger capital than we deposit. We also must understand how to maximize leverage when trading. We must try to use it with discipline so we will be able to get more maximal profit in forex. Although i just use 1:500 in my broker. that leverage also already enough for trading.

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    Using leverage allows for significant scope to maximize the returns on profitable forex trades. After all, applying leverage means you can be controlling currencies worth 100 or more times the value of your actual investment. Leverage is a double-edged sword however. If the underlying currency in one of your trades moves against you, the leverage in the forex trade will magnify your losses.Typically, in the forex markets, leverage levels set by forex broker vary, my account with Tickmill offer 1:500 maximum leverage, which means my investment are worth 500 times the value of actual investment.

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    Quote Originally Posted by ebi View Post
    Using leverage allows for significant scope to maximize the returns on profitable forex trades. After all, applying leverage means you can be controlling currencies worth 100 or more times the value of your actual investment. Leverage is a double-edged sword however. If the underlying currency in one of your trades moves against you, the leverage in the forex trade will magnify your losses.Typically, in the forex markets, leverage levels set by forex broker vary, my account with Tickmill offer 1:500 maximum leverage, which means my investment are worth 500 times the value of actual investment.
    well said, i think leverage is are one of advantage of forex online trading. I saw tickmill also offer autotrade featured myfxbook signal, this should lower my risk while entrusting my entry trade with expert trader authotize by myfxbook. well, I only had 1500 USD, and plan to use this feature starting next trading day, what leverage should I use then ? currently I use their max leverage 1:500, is it safe ? and if it's not, may I able to change my account leverage, or I need to open new account then use different leverage.

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    Quote Originally Posted by veljia View Post
    well said, i think leverage is are one of advantage of forex online trading. I saw tickmill also offer autotrade featured myfxbook signal, this should lower my risk while entrusting my entry trade with expert trader authotize by myfxbook. well, I only had 1500 USD, and plan to use this feature starting next trading day, what leverage should I use then ? currently I use their max leverage 1:500, is it safe ? and if it's not, may I able to change my account leverage, or I need to open new account then use different leverage.
    Leverage in broker must be maximized as well as possible. We can try to use demo account to test which leverage are suitable for us. For me, i feel enough using 1:500 in TenkoFx. Even trader also can start trading with small amount here.

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    1. Leverage can be created through options, futures, margin and other financial instruments. For example, say you have $1,000 to invest. This amount could be invested in 10 shares of Microsoft (MSFT) stock, but to increase leverage, you could invest the $1,000 in five options contracts. You would then control 500 shares instead of just 10.

    2. Most companies use debt to finance operations. By doing so, a company increases its leverage because it can invest in business operations without increasing its equity. For example, if a company formed with an investment of $5 million from investors, the equity in the company is $5 million - this is the money the company uses to operate. If the company uses debt financing by borrowing $20 million, the company now has $25 million to invest in business operations and more opportunity to increase value for shareholders.

    Leverage helps both the investor and the firm to invest or operate. However, it comes with greater risk. If an investor uses leverage to make an investment and the investment moves against the investor, his or her loss is much greater than it would've been if the investment had not been leveraged - leverage magnifies both gains and losses. In the business world, a company can use leverage to try to generate shareholder wealth, but if it fails to do so, the interest expense and credit risk of default destroys shareholder value.

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    Leverage will make us be helped to start trading with small amount in forex. We can try to maximize maximum leverage in a broker. Just be wise in using leverage and keep disicpline. When we get higher leverage, we should discipline in using lot size for trading.

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    Quote Originally Posted by Lucien View Post
    Leverage will make us be helped to start trading with small amount in forex. We can try to maximize maximum leverage in a broker. Just be wise in using leverage and keep disicpline. When we get higher leverage, we should discipline in using lot size for trading.
    Leverage will make us be able to trade with small amount. We jsut have to maximize leverage as well as possible with our broker. We can try use small amount to know the advantages of leverage. And for trading, i usually use 1:500 from TenkoFx.

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    The leverage mechanism is a two-edged sword. A low leverage doesn't allow using small deposit, a high leverage is too risky. You can choose what suits you better anyway, but I guess it's really convenient when your broker offers some options. I use Freshforex and have some types of account there. On A Classical account I use 1:1000 and in ECN account - 1:200.

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    Leverage is the factor by which you multiply the size of a particular trade by borrowing somebody else’s money (your broker’s money). For instance, you might open an account with $10,000 (your total margin), and then use leverage of 50 to 1 (50:1) to make a trade on $50,000 of currency by using just $1,000 of your own money and borrowing the rest.

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