Does Leverage affect P/L per pips

[shanmugapradeep]

Hello,
I understand what leverage is, but I am confused about how leverage works in forex trading profit and loss (P/L).

Currently, I am trading with a leverage of 1:1000.

For example, let’s say we are trading the EURUSD with a Take Profit of 30 pips and Lot size 0.01.

Currently, 1:1000 leverage makes me $3 for 30 pips on EURUSD with Lot size 0.01. Will leverage 1:2000 make $6 for 30 pips for same lot Size? Will leverage 1:500 make $1.5 for 30 pips for same lot size?

1. Why do people say that overleverage can kill trading capital?
2. How do I choose the correct leverage?

 

[Mazshura]

Hi, mate, speaking of the first question, then overleveraging indeed kills your capital because the bigger leverage you apply for a position the bigger margin is being eaten. So, if you open a $10 position with 1:100 leverage, then in fact this position is $1000, hence P/L ratio is changing faster.
Concerning the second question, then start with the smallest and then gradually increase it according to your personal risk tolerance. 1:5 seems to suit best to kick off, or even lower, depends on your broker.

 

[Komondar]

Leverage in forex is basically like getting a loan from your broker that allows you to trade with more money than you have in your account. For example, if you have 1:1000 leverage, it means you can control trading positions that are 1000 times larger than your actual balance.

Now, when it comes to the impact of leverage on profit, let's say you're trading EURUSD with a 30-pip take profit and a lot size of 0.01. With 1:1000 leverage, you can make $3 for 30 pips. But with 1:2000 leverage, it's $6, and with 1:500 leverage, it's $1.5. Higher leverage increases your potential profit, but it also increases the risk of losses.

Why is it important not to overleverage? Here's the deal: higher leverage makes your losses and profits even bigger. If the market goes against you, you can lose a lot of money really quickly. So, it's crucial to choose the right level of leverage that matches your trading style and risk tolerance.

When you pick leverage, remember to use smart risk management, always set stop-loss orders, and avoid overleveraging to protect your capital.