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Leverage Level

  • #1
  • First Post: Aug 27, 2006 9:26pm Aug 27, 2006 9:26pm
Hi,
I am new to Frex.
I learnt that alot of brokers offer leverage from 10:1 to 400:1
On what does the leverage level depend ?
It is cedit histor
It is libilty
It is the lot size
it is .................. ?
Thanks
  • #2
  • Aug 27, 2006 10:24pm Aug 27, 2006 10:24pm
Your amount of leverage determines how much margin is required for you to purchase a lot. For example, a 10,000 size lot of EURUSD will take up only $31.94 of your margin with 400:1 leverage. With 50:1 leverage, it will take up $255.57 of your margin. So lower margin means you can purchase less lots, which generally means less risk. Higher marging means you can make money quicker, but you can also lose it quicker.


Hope that helps,
andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #3
  • Aug 27, 2006 10:26pm Aug 27, 2006 10:26pm
Sorry, I forgot to answer your other questions. When I signed up for my account, they did not run a credit check ( as far as I know ). You select the leverage level (and therefore amount of risk) you think you can handle. You also select the lot size when you sign up for your account.

andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #4
  • Aug 28, 2006 9:37am Aug 28, 2006 9:37am
Thanks, for the reply.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o></o>

So, there is no constrains about the leverage rate. I could pick whatever is available by the broker when i set-up the account.<o></o>

Could I change this rate later? I guess yes.
  • #5
  • Aug 28, 2006 3:46pm Aug 28, 2006 3:46pm
I'm just speaking from my experience, but yes, with FXSol you can change the leverage level and lot size anytime you wish after your account is up and running, although I have never done so.

andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #6
  • Aug 28, 2006 5:22pm Aug 28, 2006 5:22pm
Thanks, that is what i am looking for
  • #7
  • Sep 5, 2006 6:30pm Sep 5, 2006 6:30pm
How you can calculate the margin used from leverage...?

Thanks
  • #8
  • Sep 5, 2006 9:07pm Sep 5, 2006 9:07pm
FXSol has a built in margin calculator on their platform. However, I know not everyone uses them like I do. So, you can go here and try to use this. It is a little confusing, but the number of units is your lot size * number of lots, and the margin ratio is your leverage. For some reason, this calculator only goes up to 50:1. I have 200:1 leverage, so I take the result from the 50:1 and divide it by 4.


Hope that helps,
andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #9
  • Sep 6, 2006 2:29am Sep 6, 2006 2:29am
Quoting Houd
Hi,
I am new to Frex.
I learnt that alot of brokers offer leverage from 10:1 to 400:1
On what does the leverage level depend ?
It is cedit histor
It is libilty
It is the lot size
it is .................. ?
Thanks
The most senior guys on the forum will advise you to start with micro-lots (400:1) and stay with that until your fund is around $25000.
Calculate your lot size by first establishing your risk on any trade ie ask yourself how many pips can I lose here.
Once you have worked out your stop loss this will give you how many lots you can trade and NOT exceed 1% of your account for this trade.
If you're looking to trade 2 pairs at the same time you should only risk 0.5% on each trade.
Peter
  • #10
  • Sep 6, 2006 3:10am Sep 6, 2006 3:10am
So the "margin used" equals Lot price x Curent currency price divided by the leverage ratio....(?)


And now a bit irelevant question on the topic... What is the "Volume:" refering into at the MetaTrader platform (it shows numbers from 0.10 to 8) ? Is it the lot size..? In what ammount is it applied into...?

Sorry if sounding too ignorant about all this... Its because i am :-)
  • #11
  • Sep 6, 2006 5:13pm Sep 6, 2006 5:13pm
For pairs where the USD is not the base currency (EURUSD), margin used equals:
exchange rate * lots * lot size / leverage | For example|
1.2800 * 2 * 1000 / 200 = $12.80

For pairs where the USD is the base currency (USDJPY), margin used equals:
lots * lot size / leverage |For example|
2 * 1000 / 200 = $10.00


Hope that helps,
andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #12
  • Sep 6, 2006 5:24pm Sep 6, 2006 5:24pm
Thanks andersenws.... now i got it.

The Volume in MT4 is refering to the leverage...??
  • #13
  • Sep 6, 2006 6:11pm Sep 6, 2006 6:11pm
Volume usually refers to how many lots of that currency was traded during that time period. However, people in the forum have said that in MT4, it is just the number of ticks in that time period, which is not an exact measure of volume. Volume has nothing to do with leverage.

andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #14
  • Sep 6, 2006 7:09pm Sep 6, 2006 7:09pm
some even offer 500:1 .. but I would pay extra scrutiny to those.

Quoting Houd
Hi,
I am new to Frex.
I learnt that alot of brokers offer leverage from 10:1 to 400:1
  • #15
  • Sep 7, 2006 1:44am Sep 7, 2006 1:44am
Quoting nikosgr
Thanks andersenws.... now i got it.

The Volume in MT4 is refering to the leverage...??
When making a trade the Volume is the number of lots you are applying to THIS trade.
So, if your standard lot is 0.01 and you wanted to trade 4 lots (assuming that keeps you within your risk strategy of 1%) you would select 0.04.
If you wanted to trade 10 lots you'd select 1.00 (See image)
The other Volume is available in properties when you right click on any chart, and is not usually used in FX as it's not releable as an overall measure of the ACTUAL market volume in the same way in stocks/futures etc. (See image 2)
Peter
Attached Images
  • #16
  • Sep 8, 2006 7:59am Sep 8, 2006 7:59am
Quoting PeterFM
When making a trade the Volume is the number of lots you are applying to THIS trade.
So, if your standard lot is 0.01 and you wanted to trade 4 lots (assuming that keeps you within your risk strategy of 1%) you would select 0.04.
If you wanted to trade 10 lots you'd select 1.00 (See image)
The other Volume is available in properties when you right click on any chart, and is not usually used in FX as it's not releable as an overall measure of the ACTUAL market volume in the same way in stocks/futures etc. (See image 2)
Peter
Thanks peter...

I don't understand though why for 10 lots the volume is 1.00 and not 0.10. Isn't it 0.01 (which is the standrad) multiplied by 10 ?

To review...

I want to trade 1 lot of gbpcad and my leverage is 100:1. To calculate the margin used i should do:

exchange rate (gbpusd) x lots (1) x lot size (this is my initial deposit..?)/100

Is this correct ?

Thanks in advance
  • #17
  • Sep 8, 2006 9:24am Sep 8, 2006 9:24am
Quoting nikosgr
Thanks peter...
I don't understand though why for 10 lots the volume is 1.00 and not 0.10. Isn't it 0.01 (which is the standrad) multiplied by 10 ?
You've got me there, I hadn't noticed that before . I know some other brokers (Oanda, I think) allow much finer control over lot sizes ie 1.30 rather than strict sizes. If you're trading InterbankFX (like me) it must be a broker thing.
Quote
To review...
I want to trade 1 lot of gbpcad and my leverage is 100:1. To calculate the margin used i should do:
exchange rate (gbpusd) x lots (1) x lot size (this is my initial deposit..?)/100
Is this correct ?
Thanks in advance
OK, this is my take. Your initial deposit isn't really relevant to the calculation here. You could deposit $100,000.00 and still trade micro-lots on 200/400:1 leverage.
The main thing is to know what each lot size is relevant to your trading risk.
Let's say each lot is worth 10 cents ($0.10) and you have assessed your acceptable risk on a trade as 50 pips, you will be risking $5 dollars on this trade.
(a) If your account is down to $100 you're risking 5% of your account (WAY TOO HIGH).
(b) If your account is $200 you're risking 2.5% of your account (STILL TOO HIGH)
(c) If your account is $400 you're risking 1.25% of your account (STILL HIGH BUT BETTER)
(d) If your account is $500 you're risking 1% of your account (MAXIMUM RECOMMENDED FOR NEWBIES LIKE US)
(E) If your account is $1000 you're risking 0.5% of your account (YOU SHOULD TREAT THIS AS THE NORM)

Now if you're on micro-lots (0.01) divide all the above by 10. Remember also that this is based on 1 trade, if you have multiple trades running, or planned, you may have to cut the number of lots on the new trades, or not trade at all, if it's going to take you over your risk level.
So to summarise, if your platform tells you that your leverage gives you 0.01 as the base trade you're on micros. What you need to do is calculate & plan your trade in this order:
(1) Risk in pips
(2) Pips in value (cents per pip)
(3) Risk value divided by account balance answer in %
(4) Plan Take Profit
(5) Set orders - Stops - TP
(6) Pull trigger
(7) Watch the trade
(8) Send me my commission

Peter
  • #18
  • Edited 1:35pm Sep 8, 2006 10:48am | Edited 1:35pm
Wow... Thanks a lot Peter for the money management courses

Although my frustration still remains on how we can find the margin used.

As you can see here i did a purchase of 0.50 lots of gbpchf

http://img187.imageshack.us/img187/8906/gbpig2.png

To find the margin i used i did bgpusp price(1.8657) x lots (0.50) x lots size (10.000) / 100 (the minimum leverage this demo account offers) which equals 93.285. As you can see this ammount has nothing to do with the real ammount used as margin...

And as i checked the minimum ammount of lots (volume) allowed by this broker is 0.10.....

So what i am doing wrong or what i have understood wrong....??

Thanks
  • #19
  • Sep 8, 2006 1:01pm Sep 8, 2006 1:01pm
Quoting nikosgr
Wow... Thanks a lot Peter for the money management courses

Although my frustration still remains on how we can find the margin used.

As you can see here i did a purchase of 0.50 lots of gbpchf



To find the margin i used i did bgpusp price(1.8657) x lots (0.50) x lots size (10.000) / 100 (the minimum leverage this demo account offers) which equals 93.285. As you can see this ammount has nothing to do with the real ammount used as margin...

And as i checked the minimum ammount of lots (volume) allowed by this broker is 0.10.....

So what i am doing wrong or what i have understood wrong....??

Thanks
The lots figure is your leverage converted into a % (percentage) of a standard lot, which is $10. This is the normal size of 1 (one) lot on the inter-bank exchange. This buys you $100,000.00 dollars when traded against another pair where the Dollar is the Base Currency (ie USD/JPY - USD/CHF - USDCAD).
So, 0.10 is is 1/100th of $10 dollars therefore you end up with 100:1 leverage.
In your graphic you have traded 5 lots X 0.10 = 0.50 - NOT 50 lots.
Any better?
Peter
BTW Can you trim your image to around 600 pixels or less 'cos it buggers up the screen and Merlin will bite yer bum
  • #20
  • Sep 8, 2006 1:21pm Sep 8, 2006 1:21pm
Quote
The lots figure is your leverage converted into a % (percentage) of a standard lot, which is $10. This is the normal size of 1 (one) lot on the inter-bank exchange. This buys you $100,000.00 dollars when traded against another pair where the Dollar is the Base Currency (ie USD/JPY - USD/CHF - USDCAD).
So, 0.10 is is 1/100th of $10 dollars therefore you end up with 100:1 leverage.
In your graphic you have traded 5 lots X 0.10 = 0.50 - NOT 50 lots.
Any better?

And what about if USD is not the base currency....?

Quote
BTW Can you trim your image to around 600 pixels or less 'cos it buggers up the screen and Merlin will bite yer bum

Will do...
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