Forex Leverage and Trading with Margin
What is leverage in Forex trading? Every online Forex broker offers trading with some leverage, which usually varies from 1:2 to 1:3000 with the most popular ones being 1:100 and 1:50. Leveraged trading is also called margin trading because you only need to have a margin to back your position while the rest is offered by your broker. Margin trading is considered to be more risky than unleveraged trading, but it also offers
- With 1:500 leverage and $1,500 in your trading account, you can open a position of 5 standard lots and still have $500 left for loss toleration. But with each pip of loss costing you $50, your position will be automatically closed when its loss reaches 10 pips. After that, you will have $1,000 remaining in your account.
- With 1:50 leverage and $10,000 in your account, you open 1 standard lot position and $2,000 from your account goes for margin. $8,000 left is enough to hold against 800 pips of loss.
- With 1:2 leverage and $100,000 in your trading account, you can open 1 standard lot position with $50,000 secured as margin and $50,000 left to tolerate up to 5000 pips of loss prior to a margin call.
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