FOREX Leverage

Leverage is margin per trade quoted as a ratio. In the preceding example, leverage is 50:1 (100,000/2,000). The higher the ratio, the higher your profit (or loss) potential.

Tip: Margin and leverage are simple inverses of each other.

As you can see in Table below (Profit and Loss (in Dollars), on a 100,000 lot a pip is worth $10. With leverage at 50:1 if prices go for (or against) you by 200 pips, you have made (or lost) your entire margin of $2,000, a 100 percent profit (or loss). See Table below (leverage) for profit or loss in dollars of margin against different leverage ratios.

[caption id="attachment_12966" align="aligncenter" width="561"]Profit and Loss (in Dollars) Profit and Loss (in Dollars)[/caption]

[caption id="attachment_12970" align="aligncenter" width="561"]Leverage Leverage[/caption]

By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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