Leverage, can someone explain it to me?

I've been a Futures trader for years, and this was actually my first week trading FX. With a 3k account, and in about 5 days I took it from 3k to 7500$ using merely a one lot. When i say leverage I mean to say: How does your account size affect how many lots you can use? Futures has made forex very hard for me to understand and if anyone can give an adequate explanation I'd greatly appreciate it. Thanks

http://www.babypips.com/school/under...e-defined.html

leverage is the leverage provided by the broker to we can increase the chances of obtaining a profit. If we are trading with leverage 1: 1000 it means that we can trade with a 1000-fold funding of our capital. therefore, leverage is very profitable for us

Leverage — an instrument that lets one trade bigger sums, having only a part of the sum. For example, with a 1:100 leverage, you can conduct a trade of a USD 100 000 volume, having only USD 1 000 of your own funds.

which currency pairs did you trade to double your capital in 5days and what was the lot size?Am sure if the trade have gone the other way round,you would have lost your capital or had a margin call.All i can is that you were lucky on that trade.

This should simply explain what leverage is

'' How does your account size affect how many lots you can use?''

I guess the bigger your account size the more lots you can buy

In my understanding, LEVERAGE is the tool by which the trader can magnify his/her profits and losses. Higher the leverage higher will be the lots that you could trade and less amount would be paid by you and vice versa.
For instance, Margin = 1/ Leverage, if your leverage is 1:100 then your margin amount that will be required to be paid to the broker will be (1/100=1% of your notional amount).

leverage is very helpful for traders who try to trade using small capital. Trading using little capital then it would be better off choosing a high leverage for trading with high leverage, the margin required is very small

Trading futures for years and don't know how leverage affects your buying power? If your account is 3K and leverage is 1:100 then you can open 300 000 position or 3 lots max. The less is your leverage the safer is your trading. For example for 4 years trading with Hotforex I gradually lowered leverage from 1:500 to 1:100 and I can safe its hard to drive your account to severe drawdowns because your losing slower

simply it is a loan.

the broker loan you additional money so you can open larger positions

if you deposit 1000$
and the broker provide 1:100 leverage just
that mean you can open positions 100x 1000 = 100 000$ and he will charge you interest.

Now that you know what leverage is, learn how to manage it. The higher the leverage the faster you lose your money if your trade goes against you. If you're trading with 500:1 or 200:1 leverage, you have to tighten the amount of drawdown you can let a trade go into before taking a loss.

Consider starting with 50:1 leverage so you can learn how to manage a trade that's in drawdown and learn to manage risk. If you become a killer trader and great risk manager, increase your leverage.

leverage is the fund provided by the broker to the trader, with the leverage we will be able to trade with the maximum. Leverage will help us to trade with large volume and opportunities we will be even greater. If we choose leverage 1: 1000 then we can trade with a 1000-fold of our capital

Mostly traders are scared about using high leverage in Forex. It is quite right that choosing high leverage will cause the reason high loss but also can give the big profit , its overall risky to use the high leverage , my opinion is that we should use the small leverage in order to get the fruitful result from this business.

leverage is debt. You borrow money that you don't have and you use your little money as collateral.
Let say 1:1000
1 lot = $100
If the market goes 10 pips against you, you will lost your $100 and you owe money to the broker (your loses) which they will deduct it from your account balance.

in Fx trading from all trading elements leverage is an important financial tool which
an investor should consider when choosing a broker.
practically leverage allows an investor to grow his market exposure to a level that exceeds the initial investments.

Leverage is not inevitable for trading. the broker actually provide this financial tool as a loan , but if you can use it with great planning with risk managing approach then you can make profit very rapidly by using it. On the other hand you can fall a great loss by using leverage due to non-sense planning and zero risk management plan.

Maximum traders in Forex like to trade with high leverage for making profit instantly.
But traders who make profit consistency ,
I don’t think they use high leverage.
They way I see it.
High leverage gives us the benefits not to worry about margin requirements and one less thing to focus on. Abusing leverage can be costly for traders.

I have seen beginner can’t control emotion by high leverage that offers their brokerage. Ultimately they become loser when trading practically with high leverage. So I think beginner always should avoid high leverage for avoiding risk. But they can trade with high leverage in demo account too see its reaction.

Sheesh, a whole bunch of people seem to have some confused ideas about leverage. It is very simple.

Leverage Defined
Leverage determines the amount of free margin required in your account to open a trade. That's all. A leverage of 1:100 means that for every $100 of currency traded you must have $1 of margin in your account. A standard lot size is 100,000 currency units. If that currency is USD then a 1:100 leverage means your account requires $1000 margin for each full lot traded, long or short. If your leverage is 1:500 then a $200 margin is required for each lot traded. So if you wish to trade 0.1 lots at 1:500 you would need a margin of $200 X 0.1 = $20.

In the Futures markets, all contracts are the same size and cannot be broken up into smaller units. So in the futures market it is customary to speak of a fixed value of margin, e.g. "the margin for ES is $10,000." But in Forex you can trade fractions of a lot, so margin is a moving target, therefore it is more customary to speak in terms of "leverage" rather than "margin per lot". The relationship between the amount of margin required and the amount of currency traded is your leverage.

Definition of "Lot"
The currency pairs traded are normally referred to using six-character strings, such as EURUSD, GBPJPY, etc. A "Lot" is defined as 100,000 units of the front currency listed. One lot of EURUSD is 100,000 euros (traded against the USD). One lot of AUDJPY is 100,000 Australian dollars (traded against the JPY). When you buy a currency pair (e.g. GBPCAD) you always buy the front currency of the pair. A lot is always 100,000 units, and its always the front currency of the two currencies named that is being bought or sold. (The back currency listed is explained further below.)

Margins Explained
"Margin" is the amount of money your broker requires you to commit to covering potential future losses on a trade before he will allow the trade to be opened. That money remains in your account after the trade is opened, but it is now allocated and cannot be used as margin for another trade. The total amount of unallocated funds available in your account to open additional trades is displayed in Metatrader as "Free margin".

In the Futures markets, there are two margin numbers supplied: an Initial Margin and a Maintenance Margin. Initial margin is how much margin is required to open a trade, and the maintenance margin is how much is required to keep the trade open before you receive a "margin call" from your broker (which literally meant that you received a telephone call to immediately put up more margin). The maintenance margin was typically 80% of the initial margin when I traded futures (I presume it is still the same today). If the account was not kept above the maintenance margin level the broker would close the trade.

The cash Forex market is a lot more loosey goosey about margin calls and maintenance margin (and they don't call it that). The term you are looking for is "stopout level" and it is usually posted somewhere on the broker's website, where the details of the trading account are listed. The highest stopout level I've seen is 50%, which means your maintenance margin is 50% of the initial margin. Many brokers have a stopout level of 20% and some may go even lower. When the free margin in your account goes negative, in Metatrader 4 the bottom line that displays the Balance, Equity and Free margin of all your open trades will turn pink. I've asked some Forex brokers about margin calls, and they explained to me that the term "margin call" only means that the summary line in Metatrader 4 turns pink. You don't ever get a phone call from them asking for more margin. The line will stay pink as long as your account balance is less than 100% of the total margin requirement for all tickets currently open. If the available balance of your account dips below stopout level X margin requirement (e.g. 50% of the full margin required), the server will randomly close tickets in your account to reduce the total margin requirement.

Leverage is NOT a Loan
Several posts in this thread have said or implied that leverage is a loan, which it is not. In spot Forex, currencies are always traded in pairs, you simultaneously buy one currency and sell the identical value of the other currency. The net difference is always zero -- that means you neither borrow nor lend anything. When you buy one lot of EURUSD you buy 100,000 euros, and you sell 100,000 X EURUSD quote price of USD (the exact amount varies according to the current quoted price). So for example, if EURUSD is now quoted at 1.11945, then when you buy one lot of EURUSD you receive 100,000 euros and you deliver 100,000 X 1.11945 = 111,945 USD. Later, if the EURUSD quote changes to 1.11995 and you sell one lot of EURUSD you deliver exactly 100,000 euros, and you receive 111,995 USD, the difference between the USD you received when you closed the trade and the USD you paid when you opened it is 50 USD, which remains in your account, minus commission, after the trade is closed. When the back currency is something other than USD (e.g. JPY) then you deliver or receive units of the back currency, but when the profit or loss is computed the software automatically converts it to the base currency of the account (usually USD) at the prevailing exchange rate.

Its not rocket science, so take the time to figure it all out. As a trader, if you want to win consistently you are going to have to play your A game every day ("play your A game" = American slang, meaning to play at the peak of your potential). Its hard to see how anyone can do that if every time they go to open a trade they have a nagging doubt that there's something about Forex that they don't understand. Clarity is important.

Thank you very much Trainman for your nice description.
got some new points especially leverage is not a loan.