How does leverage work?

Hi, I've recently made a trading account and have been asked what leverage I want.
I don't know much about this and would like some help.

I have a 240 micro account at the moment.
I wish to risk 2% per trade
I usually trade lower time frames therefore risk around 20 pips on average.

Can someone please explain to me what leverage I should use /how to calculate it

Thank You.

http://www.investopedia.com/ask/answ...exleverage.asp

Well how did it go? Did it work our for you?

Actually leverage is an important financial tool which an investor to grow his market exposure to a level that exceeds the initial investments.

Actually leverage is very supportive to make profit rapidly, but by using leverage sometimes we fall a great loss when trading practically. So before trading with high leverage we have to be confirm how to use leverage accurately without any risk.

Simply because you have access to a tremendous amount of leverage in your account does not inevitably mean you want to utilize all or any piece of it. you are at greater peril of physical injury driving at extraordinary speeds and leverage is comparable to that similarity. Increased leverage places your trading account at hazard.

Sometimes leverage brings profit in a short time if it is used by proper risk management, my trading career I always like to use small leverage for avoiding risk , but when I can predict the market with surely then I use high leverage for making profit instantly.

Leverage is a borrowed money provided by your broker which gives you the ability to control a large amount of money using none or very little of your own money.
Example:
If you want to make a 500 thousand dollar trade, you can put in only 1000 dollars of your own, and your broker will give you the ability to control the 5 hundred-thousand dollar trade (leverage 500:1). As a result, if you make 0.2% return in your 500 thousand dollar trade, that is going to be 100% return on your own thousand dollar.
Note: You can get a significant return, but leverage has a potential to bring you equally significant losses.

Simply put, leverage allows you to open a greater position using less of your own capital. Also, you should be aware that higher leverage could work both ways – It could either help you gain bigger profit or blow up your account in a matter of seconds.

Actually in Fx trading leverage is the best system to make trader make, good profit from market even though have small deposit amount only. I think all the traders we have should being thankful with that. But leverage is like double edge sword that beside give advantage to traders, also risky if traders not choose the ratio wisely.

In Fx trading leverage is simply the process of getting higher purchasing power relative to our investments. Basically leverage is provided to encourage traders to do high volume. This in turn benefits the forex broker in the form of commission or brokerage they make from their spreads. Leverage is a double –edge sword. It can multiply the profit or less substantially. It always better to stick to a leverage of 1:100 or less.

In Forex , leverage is among the things that made forex trading very unique because leverage makes one to have chances of making good amount of profits even with small amount of capital , so leverage is good as well as risky causes the high leverage the higher risk.

In order to my trading experience, I think leverage is actually not a borrowed money but use your money (capital) as leverage. Meaning you are betting our own money and increase or decrease the stake of risk by increasing or decreasing your leverage. For example, if you use 1:100 leverage that mean if you going to incur losses will be 100 times that your actual loses or if you make profit, your profit will be 100 times more than actual profit.

Actually , in Fx trading leverage are being choose according to the amount you are having which is your capital , moreover leverage is not a must so one can also trade normally without it. Using a stable leverage will also maximize ones profit and also maximize loss at same time, different brokers has their own leverage.

Hello Everyone!!

As on obviously new member, I have been on the "outskirts" of Forex for a while now. Recently, I joined a trading room - but a demo acct only. I understand the overall concept (I think) of forex, pips, etc -- but setting up my demo account for the right risk management strategy is confusing....at least it seems that way, but maybe it's not. For example with a 2500.00 demo account what leverage do I select with my broker? And with my trading signal is Risk Multiplier Using Account Balance vs Risk Multiplier Using Account Equity vs Lot Multiplier vs Fixed Lot best? What number or % multiplier to use? I have been adjusting and going back and forth but the results are the same. My demo account is in the red. Also -- What is a good lot size to start with if any if you don't know the "Master" lot size? Lastly, the drawdown %...what is a good % here? Maybe -- after reading this -- you feel I have no idea what I'm doing. That's possible -- but I welcome any feedback from you all and any suggestions you have. Thank You. == Here's to being a long term and profitable member and understanding what I'm doing!!

Leverage is good as per this I think that a good trader that wanted to earn here must be sure that they try their possible best and chose low leverage, high leverage is not good at all we should not trade with too high leverage to be on the safe side.

Thank you Banet.

But is using risk management using equity, lot size or account balance better...and based on that, then how much / % should i risk based on the selected risk? I've read the max drawdown should be like .02% right?

I find this relationship interesting...

Leverage is not the enemy... Leverage only allows you to trade more, it does not require you to trade more... When trading on margin your broker will require you to keep a certain amount on deposit. If you trade 1:1 then your broker will require that you have 100% of the position that you take to be on deposit.

If you select 50:1 leverage, then the broker only requires you to have 2% on deposit...

A simple example... If you have a no leverage, 1:1 account and you want to open a 100 unit position, you will need to have 100 units on deposit...
if you have a 50:1 account, and you want to open a 100 unit position, you will only need 2 units on deposit.

People often get confused about leverage and say it is bad. Trading on margin allows, but does not require, the trader to magnify their profits or losses.

I currently have an account with Oanda, and I trade live. My account is set up for 50:1 leverage. If I have 100,000 units on deposit, I can open a position ranging from 1 unit to 4,663,483 units..

Trading on margin or with leverage, allows for more units available... It does not mean you must trade the full amount available..

Check out this calculator : https://www.oanda.com/forex-trading/...its-calculator



abc77 - risk management is complex... your risk profile is completely up to you, but there are some good rules to follow, like the one you stated about a max drawdown of .02%. some good rules are having a 2:1 risk to reward... Meaning your trade setup should provide at least twice the amount of pips to how much you are risking. I.e. if you have a 10 pip stop loss, you should be able to get at least 20 pips out of the trade... Managing risk is also tied up with expected value... This is a complex mathematical topic and a lot goes into it. Here is a good primer : http://people.math.umass.edu/~lr7q/p...h456/Week5.pdf

I seem, your may work with low trading leverage facility because of your small trading balance! High trading leverage is always risky for novice traders, it inspires to use over trading lot size! Whatever, I appreciate your trading decision on risk management issue! You can try with 1:100 leverage, but practice first in your demo account!

1:100 and 0.01-0.02 lot , I prefer trading safety . don’t need to earn too much , just want to minimize the loss and risk.