What Is leverage in Forex trading The most common question arises during trading is about what is leverage in Forex. Leverage is the amount...
What Is leverage in Forex trading The most common question arises during trading is about what is leverage in Forex. Leverage is the amount provided by broker or institutions for the traders against there original deposits. Here The Original Deposits the amount you actually deposit in the trading account and while opening the trading account if your broker puts the options in front of you to go for leverage like
- 1:500
- 1:200
- 1:100
- 1:50 and so on
In the above bullets the formal leverage provided by the brokers to you .so in layman language if you going to deposit 1 Dollar then the broker will allow you to participate in with 100 Dollars ,wow isn't it so excited,well it looks excited but we will discuss its pros cons in other article but for now let us understand .the amount we need to trader lots as per these leverages.
There are 3 sizes of lot provided by your terminal and which actually carried out in Forex transactions
The three lots are
- Standard Lot
- Mini Lot and
- Micro Lot
Lets see what standard lot means, having volume of 100000 qty ,For example if you going to but eur usd for approximately say 1.1100 Dollars as per current rates then the actual value of this trade will be $1.1100*100000=$111000. In this case if you having leverage of 1:100 You will bet $111000/100=$1110. This is for 1:100 leverage
In case you have 1:500 Leverage then you will pay $222 For one standard lot.
The amount will decrease if you go with the mini and micro lots respectively
For more clarification we will take one more example on this for Micro Lot having qty 1000
Lets see what Micro lot means, having volume of 1000 qty ,For example if you going to but eur usd for approximately say 1.1100 Dollars as per current rates then the actual value of this trade will be $1.1100*1000=$1110. In this case if you having leverage of 1:100 You will bet $1110/100=$11.10. This is for 1:100 leverage
In case you have 1:500 Leverage then you will pay $2.22 For one standard lot.
This is How leverage works Now I am sure you have no confusion in leverage.
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