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Question on Leverage

Discussion in 'General Forex Talk' started by Princepessa, Mar 3, 2009.

  1. Princepessa

    Princepessa Private

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    Hello Everyone,
    I have a question. I just opened a live account which carries a leverage of 500:1. It does have an option to change this leverage though. However since I plan on trading a maximum lot size of 2000 for every $1000 in my account, does it matter if I don't change this leverage to something lower like say 200:1?
     
  2. Rey Johnson

    Rey Johnson Recruit

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    To trade $100,000 of currency, with a margin of 1%, you will only have to deposit $1,000 into your margin account.

    Example: leverage of 200:1 means that for each dollar invested a broker adds 200 dollars on top, making the trading account 200 times larger. Thus, funding your account with $1000 at 200:1 leverage would enable you to operate a $200,000 account. Leverage is your trading margin account.

    Leverage requires you to put up a small percentage of the total trading lot. As an example if the leverage was 100:1 and you wanted to trade $100,000 worth of currency on a margin of 1%, your required deposit would only be $1,000.

    You need to manage your account wisely so you have plenty of margin in reserve at all times during a trade. If you use too much margin during a trade you could get stopped out if a sudden move against your trade dips deeply into your margin. Using a STOP on your trade at a wisely chosen level will protect your margin if there is a sudden market change that would go against your trade.

    Hope this helps with your question!
     
  3. Cesil

    Cesil Private, 1st Class

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    500:1 Is an insane amount of leverage. Using the full amount would require balls of steel IMO...
     
  4. Princepessa

    Princepessa Private

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    Thanks for the replies guys.

    @Cesil, I have absolutely no intention of using the full amount. For me each $1000 in my account will trade a maximum of 2000(2 micro lots).
     

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