Margin and Leverage

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Margin and Leverage
The term leverage (leverage factor, usually in a ratio of 1:50, 1:100, 1:250, or 1:500) in the forex margin trading means that if you want to trade for $ 10,000, you do not need to provide $ 10,000 but fairly, provide a margin of $ 100 ( leverage of 1:100) as a guarantee fund to your broker.

So the margin can be interpreted as guarantees held by the broker when you make trades. Margin would soon be returned to you after you close your account / liquid position you open.

Suppose you have $ 1,000 cash at the broker that has 1:100 leverage. This means you can trade with the amount to nearly $ 100,000 (or nearly as much of your capital 100X). This also means that to use a $ 100,000 contract size you need a 1% margin of $ 1000.

Another example: You have a capital of $ 500 and your broker has a leverage of 1:100, so if you want to buy using 1 mini lot (10,000) then the margin was detained for just 1% of the total contract sizenya (10,000) ie (1% x 10,000) or using a margin of $ 100.

This means that your capital will be held temporarily and are pledged as collateral / margin by the brokers is $ 100, the remaining $ 400 is used to hold your loss.
And when someday you have to liquidate that position then the margin of $ 100 earlier will be returned to you.

The advantage of the leverage is with a smaller capital you can trade with a number of contract size / lot the same as if you do not use leverage.

Or it can be said, with capital equal, you can use the contract size is greater than not using the leverage. So with the same capital, you have a chance to get profit per pip greater.

With or Without Leverage Leverage?

Leverage Margin Margin Requirements Contract Size Used Profit
1:1 (without leverage) 100% $ $ 1,000 $ 1,000 0.1/pip
1:100 1% $ $ 10 $ 1,000 0.1/pip


Leverage Big or Small?

Leverage Margin Margin Requirements Contract Size Used Profit
1:100 1% $ $ 1,000 $ 100,000 10/pip
1:200 0.5% $ 1,000 USD $ 200,000 20/pip
1:500 0.2% $ 1,000 USD $ 500,000 50/pip