Leverage in forex

Hey Chaps

Sorry for the noob question.......

Can anyone explain what this 1:500 or 1: *** leverage means?

what does it mean for a very small forex standard account if one changes it from 1:500 to say 1:66?

Thanks

Leverage is the ratio of the amount of money you must have in your account, in order to take a certain size position.
e.g.
-- Leverage of 1:100 means that you need $1,000 in your account, in order to take a$100,000 position (1 lot)
-- Leverage of 1:200 would mean that you only need $500, in order to take a $100,000 position (1 lot)
-- and so on

All is explained in more detail in my post here (see the 'Leverage and Margin' section).

If you use proper risk and money managment it won't mean anything for your account.

I couldn't agree more.

Thanks for all the answers guys,


Does it affect your $/pip value?

How does someone trade for 3-5 years and not know this stuff? No disrespect pal, but this is something you should have learned in the first week of your trading career. Take some responsibility and read a book about trading, or use google.

U r Right birdt

I have been really focusing on a system more than anything else, learning more about indicators, price action, Price patterns etc

I am no pro , still part of the 95% that lose most of the time (for the time being hopefully)

Books read: Trade like jesse livermore, REMINISCENCES OF A STOCK OPERATOR, Japanese candlestick charting techniques

Here's a pretty good round-up of margin and leverage:

http://www.fxstreet.com/education/fo...008-10-21.html

Like Tjpld said, if you operate within reasonable boundaries then you needn't worry too much about it. The primary role of the trader is to manage risk. If a large portion of your trading capital is at stake, you're exposing way too much at risk using even double digit leverage let alone triple digit. There may be an argument for funding an account with a small portion of your total trading capital and utilising high leverage upon that, and constantly managing the money at risk, so the rest of your total trading capital is not risked in a shady, unregulated, non-segregated broker account.

More to the point you need to learn the difference between borker leverage and true leverage.

A quick hunt around the Rookies section will clear this up or use the Search facility on this site.

That is absolutely correct. There is a common misconception that the problem is high leverage. No, the problem many traders have is their own lack of discipline and lack of proper money management. Leverage is really a non-issue. This is an important point to realize considering that CFTC chief Gary Gensler is trying to get U.S forex leverage lowered to 10:1, apparently thinking that will somehow magically solve the problem of dishonest brokers and ill-informed traders. But, again, leverage isn't the problem. See my post in the " 10:1 the new U.S. forex leverage?" thread.