04 - What is leverage? - easy-forex - Education

For more info visit: Easy Forex - http://www.easy-forex.com/gtw/6255274.aspx When most people think about investing they think that they need large amounts of initial capital in order to start. While this may be the case for stocks, bonds and other investments, forex is much more accessible due to the use of leverage. So how does leverage affect your trading? To explain, think of buying a home. You may want to buy a property that is worth one hundred thousand dollars, so you go to a bank to take out a loan or mortgage. The bank requests that you supply twenty percent of the property as a down payment on your loan. So, for twenty thousand dollars, you are now able to enter into ownership of a one hundred thousand dollar home. This is an illustration of leverage in real estate. You have bought the home at a leverage of five to one, since twenty thousand dollars is one fifth of one hundred thousand dollars. One year later the property market has appreciated by fifty percent and you decide to sell the property for one hundred and fifty thousand dollars, making a fifty thousand dollar profit. If you had not taken out a bank loan and had used only your twenty thousand dollars to buy a small studio which cost that amount, your total profit after a fifty percent property price increase would have been only ten thousand dollars. Your five to one leverage has allowed you to earn five times more than you would have if you had traded without leverage. Let's see how we can apply leverage to a forex deal. You currently have one thousand Euros to invest and you decide to buy one hundred thousand EUR worth of EUR/USD, at a rate of one point thirty-one thirty. Since one thousand is one hundredth of one hundred thousand, you are using a leverage of one hundred to one. The EUR/USD rate then moves up to one point thirty-one forty and you decide to close your deal, making a ten pip profit. Using the pip formula from the 'What is a pip video,' you can calculate that your total profit is one hundred dollars. If you had not traded with leverage you would have only made a one dollar profit. In fact, depending on your account type and risk preference, you can trade much smaller or larger deal sizes, and use different levels of leverage. It is important that you keep in mind that higher leverage can increase your potential profits, but it can also lead to bigger potential losses. Due to this risk, we encourage traders to plan their trades well by making sure they employ a risk management strategy and keep learning about the market. To improve your trading skills further, you can visit the Learn section of our website where you can explore the rest of our educational tools such as our eBook, and sign up for our online webinars

Comments

1. The most important factor in Forex is leverage. Leverage is expressed by ratio and it is on the base of margin requirements by broker. Leverage depends on broker. But you have to be wise in using leverage. You will get high leverage if you are able to maintain minimum 2% margin in your account. This is the most powerful tool to make huge profit. As a trader I prefer high leverage to make profit ECNCAPITAL.
2. Forex leverage is the best thing or option among others which provide by traders or investors brokers. This video explain leverage in a great way. I love to watch more videos like this one. Investors should be cautious about taking high leverage risk with their trades, specifically this advice is for new traders. My broker ECNCAPITAL also giving their customers the best leverage facility. But we are using this with proper plan.
3. with 1:100 leverage on 100 $ which is 10,000
   and my lot size is 0.01 then
   Q.: how much #PIPS i got?
   anyone guide me
4. Best leverage site please ?
5. Hey question, someone set me straight- in the example: they invested 1k leveraged at 1:100 to control 100,000 units (1 lot)
   wouldn't that mean each PIP is worth $10. and a 10 PIP appreciation would equal $1000.... am I missing something????
6. with 1:100 leverage on 100 $ which is 10,000
   and my lot size is 0.01 then
   Q.: how much #PIPS i got?
   anyone guide me
7. thanks for the info! dumb beginner question but am I understanding this correctly?.... If I were to open a position with 100 dollars for instance, and I have 10:1 leverage, it means I am trading with 1000 dollars - so if I invest this in a stock because I think the value will go up (and it does) all I have to do is close the position, the broker gets their investment back and I make more profit than I would have done if I hadn't used leverage. What happens if I open a position with the same investment/leverage and the stock price drops dramatically? Could I potentially end up loosing an entire 1000 dollars, even though I only invested 100 dollars of my own money? If the share price dropped to almost nothing, could I not wait until the share price goes back up again before paying my broker back? Are there deadlines for returning the broker's money? If anyone could let me know, it would be greatly appreciated!
8. Masak sih.. beneran
9. would like to ask that, if i invest 500usd and with most of the trades of 0.01 lot, is 1:400 leverage ok? i not sure if leverage is affect if i always trade 0.01 lot,
10. what if the price goes down and I can't repay? they took my 20k if the price of house would've go down from 100k to 80k? and all the rest 80k? right?
11. Very clear explanation for the first time traders. Thank you guys.
12. best video explaining leverage...
    Thanks Guys
13. finally something useful and easy to learn about leverage~~~
14. THANKS!!!!!!!!!!!!!!!1
15. (y)