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Thursday, June 6, 2019

What is leverage in trading

What is leverage in trading

Leverage in Forex trading is the ratio of fund of any investor or trader and maximum offer credit by any forex broker.

Let's understand with simple language

If you open 1000$ account in forex trading

suppose that forex broker gives you 1:200 leverage trading credit

so, 0.01 lot size is equal to 1000$ trade

 Your leverage will be 

1000 * 200 = 200000$ 

You can trade up to 200000$ on only credit

If you trade 0.01 lot size 

You can place 200000 * 0.01 = 2000 maximum trades

Is that simple as that 

But remember higher is leverage in forex higher chances of lose.

maximum leverage allows you to increase your lot size quantity ultimately increase your risk by a mismatch in risk to reward ratio and money management.

The size of leverage is not fixed at all companies, and it depends on trading conditions provided by a certain Forex broker.

One of the reasons why numerous people today are interested in buying and selling forex trading in comparison with other trading platforms is Leverage in forex trading.

Forex offers larger leverage than stock or shares market. 

How to Calculate Leverage in Forex

To measure the leverage for forex trading by using leverage formula.

Leverage = 1/Margin = 100/Margin Percentage

for Example: 

If the margin is 0.01, 

then the margin percentage is 2%, 

So, leverage = 1/0.01 = 100/1 = 100.

To calculate the amount of margin used, just use our Margin Calculator.

You can read more about What is Leverage here

In forex trading, currency movements in pips, which is the change in currency price is ultimately depending on the currency pair. 

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