Forex Leverage or Margin Loan

Posted by: | Posted on 4:36:00 PM | Post Categories

 Leverage or margin loan is the maximum number of loans your Forex broker will give you on top of your capital.

Suppose your balance or capital is $100. If you use 1: 200 leverage, your broker will lend you up to a maximum of 200 times when you trade. Now it's up to you how much you borrow. So, with 10 dollars you can trade 10x200 = 2000 dollars.


If I get a loan up to 200 times, then why not? The stock market does not want to give 1: 2 loan.

Suppose you deposit $10, decide to use leverage, 1: 1, which means don't take a loan. In that case, the broker will not allow you to open any large size trade. With that 10 dollars, you can open as many big trades as you want. In that case, if the market moves 50 pips in your favor, you may gain 1 dollar. Usually different currency pairs move 100-300 pips per day.

So you thought, take a loan and open a bigger trade so that the profit is more. If a broker offers you 1: 200 leverage, you can trade $2,000 with 10 if you wish. And so, the profit will be 200 times more than what it used to be. Similarly, if you make full use of the 1: 200 leverage that used to be a loss, the loss will be 200 times greater. If earlier the market moved 50 pips in your favor, you would get a profit of  $1, now you will get a profit of 200.

The broker loan will give you exactly. It is better to make a profit, in case of loss, if your loss is equal to your capital at any time, then your trade will be closed automatically. Under no circumstances will the broker allow your trade to run at a loss higher than the capital you have.

Brother, this is a terrible thing! If my loss is equal to the capital to open the trade using more leverage, will I go bankrupt or not?

Straight to the point, yes! So, no matter what leverage you set, never open a trade larger than the balance when opening a trade. Some people say that it is possible to double or triple the capital of Forex in one day. Of course it is possible if there is luck. But if you trade with risk in this way, you will have to eat one day or the other.

 


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