Lots leverage?

Hi,
i so often read that terms and still dont know what it means.
Could someone give a short explanation.
THanks mike

1 lot is 100k units and it would cost me $500 to hold that position at 1:200 leverage. If you are using a 1:400 leverage then you'll only need $250 to open a position of 100k units or $10/pips.

If you have time, here's a very useful addition to it:
http://www.forexfactory.com/forexfor...ead.php?t=5673

Regards,
East

Leverage is the degree to which you, as an investor, are utilizing borrowed money (in this case money borrowed from your forex broker).

For example, leverage of 100:1 means that you can control $100000 using only $1000.

Dane

ah thank you very much all

I have an additional question about leverage


say i have a micro account. say i am not going to use any leverage at all. I buy one lot per $1000. in theory i would not be wiped out until gbp dropped to $0, eg i walked into a bank and gave them $1000 dollars and asked for the same value in gbp.

grb is at 1.8605. if it drops 10,000pips (micro acount of 1000) it would be at 0.8605, but if I only bought $1000 of currency how could this be true? if i lost $1000 gbp should be worth $0.

are we all working at 1.8 leverage to begin with?

You are miss-calculating it my friend....At the rate you are talking about, 1 GBP = 1.8605 USD, and you have $1,000 in your micro trading account...Thus, your $1,000 is actually worth $1,000/1.8605 = 537.49 GBP....When you enter an order to buy 1 micro lot for the GBP/USD pair, you are actually buying 1,000 GBP & selling the equivalent 1,860.5 USD...That's why you earn $1, if GBP moved up from 1.8605 to 1.8615...

Now, let's say that you have 1,860.5 USD in your accout, and you decide to buy 1 micro lot of the GBP/USD pair...This way, you should be wiped out only if GBP drops to zero theoritically, (Of course it will never do)....

In this case, a 10,000 pips drop will cause GBP to fall to 0.8605 like you said and you will lose 1,000 USD and the 1,000 GBP you bought are worth 860.5 USD right now....If GBP moved lower by 8605 pips (Which will never happen of course), you are wiped out completely....

The way you caculated it goes with pairs like the USD/JPY or the USD/CHF as you are actually buying or selling lots of USD....In all cases, when buying or selling, you are buying or selling lots of the primary currency...


Thanks,

Nader