Understanding Forex Leverage
Forex Leverage gives you multiplier effect on money if you know how to use it to your advantage
Forex leverage allows you to trade a bigger sum of money with little money. A forex leverage of 1:100 means for every dollar you deposited as collateral with your broker, you can trade up to $100. Essentially, the $99 is like borrowed money. Good news is, if your trade has a positive swap (e.g. to buy NZD against JPY), then you will be receiving interest payout base on $100 (while you only use $1 to activate this trade).
Do note that forex leverage can work against if you over trade or over leverage.
FOREX LEVERAGE IN DETAIL
- Leverage is expressed as a ratio and is based on the margin requirements imposed by your broker
Type of Leverage
|50 : 1||100 : 1||200 : 1|
|300 : 1||400 : 1||Or More|
- Using a ratio of 100:1 as an example, means that it is possible to enter into a trade for up to 100 dollars for every dollar in the account.
- Margin is like a deposit or collateral provided to your broker in order for you to trade. Margin per trade required depends on the type of leverage and currency pair.
- On a leverage of 100:1, a margin of $1000 allows you to trade up to $100,000 unit worth of currency.
- Good news is that margin required is automatically calculated. Your broker will not allow you to open a trade if you do not have enough initial margin.
- As a rule of thumb, it is good to utilise not more than 30% of your deposit as margin so that you have sufficient funds for rainy days.
- We recommend a leverage of not more than 100: 1 for your account.
- To find out more on margin for different leverage do check with your broker as different broker require different margin
TRADES & LOSING TRADES
“Live” actions and reviews from our students directly from our social media accounts. We don’t tweet winning trades only. We tweet losing trades as well. It’s just that we have more winners. Follow @terraseeds in twitter for live trades and forex ideas.