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Trade
Leverage on Forex
Leverage – the ability of a trader to trade more capital than he has actually. This allows you to increase their profits, at the same time, increasing risks in the work. At the moment, currency speculators offered in various sizes leverage from 1:50 to 1:2000. How leverage works in Forex, will be discussed below in the examples.
To buy 1 lot EUR/USD currency pair, we would want the sum of 100.000 USD. Of course, few traders have this capability. In order to be able to work in the market using the capital, that is, brokerage companies offer their clients to use leverage 1:100. In this case, to purchase a lot (100,000 USD) EUR/USD speculators will be sufficient to have only 100.000/100=1000 USD.
This value is required for the purchase of contracts for 1 lot, will be the key. It is fixed to the client's trading account and can not be used before the closing of the transaction. Any change of direction in the market will affect the Manager's capital. If the market price goes in the direction of the transaction, for each item of funds to increase by $ 10. If the market price moves in the opposite rearward opening position, for each item covered by the funds in the account are reduced by $ 10.
A trader bought a contract for $ 100,000 is only 1% to the speculator. Its share in monetary terms is 1000 USD, and the remaining 99.000 USD merchant do not belong, and this means that they can't be lost unlike own funds. If the market will turn against the position of a speculator, then every item that is the trader will lose part of their money.
Thus, by opening positions using leverage, it is worth remembering that the Deposit should be kept for more funds that will act as airbags in case of undesirable developments in the market.
In the example, if the man bought one lot EUR/USD with a leverage of 1:100, and his account in that time was $ 3,000, we get the following situation. 3000 as security Deposit will be fixed at $ 1000, and the remaining 2000 will be free to use. If the market price goes 15 pips into loss from the opening point of the position, the available funds in the account is 1850 USD. For ease of understanding the example believe that the spread is equal to zero.
The effect of leverage on the risk level
There is an assumption that leverage affects the level of risk in the trade. In order to understand how this assumption is close to reality, consider the examples. In both cases, on account of 3000 USD trader, both times bought 1 lot of EUR/USD. Let one speculator trading account with leverage 1:100, and the other 1:500. The first speculator Deposit of 1,000 USD for each completed market price point adds or decreases, depending on the price movement of USD 10.
Let deal in both of traders was unsuccessful. At the time of analysis of the situation on the deposits loss amounted to 80 points. In the terminal with a leverage of 1:100 can be seen Deposit 1000, available funds 1200 ([3000-1000]-80*10). In the terminal with a leverage of 1:500 Deposit will be as little as 200 USD (100.000/500), and the available funds will be 2000 ([3000-200]-80*10). It turns out that when using a higher value of leverage, the Deposit will be more available funds. At the same time, both accounts will be equal to the Deposit and available funds.
It turns out, svibr the size of the leverage does not affect the degree of risk in trading. So it became clear that the larger the leverage value used, the less the amount on Deposit is recorded as Deposit when opening a transaction.
In the second embodiment, when values were used 1:500, had more opportunities for the implementation of the maneuver, for example, to open new positions. The first account with a value of 1:100 is limited opportunity to purchase a maximum of 3 lots of EUR/USD, while the value of 1:500 you can buy 15 lots of the same currency pair.
Large values of leverage in Forex most often popular among those currency speculators who uses a lot of transactions or substantial quantities volumes. For example, fans of systems that use martingale will appreciate the suggestions of the brokers with values of leverage 1:1000, 1:2000. Small Deposit required for operations, leaving a large amount of free funds that can be used for "sittings out" of the loss or the appearance on the market of new agreements.
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| Category: Forex | Added by: (05.11.2017)
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| Views: 433
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