An understanding of leverage in forex is very important for you to know before you dive into the world of trading, especially for those of you who just know the world of forex.
With an understanding of leverage, then you will surely know how to manage financially should you in everyday life, whether it’s for everyday living expenses, and to plan your future, for example to invest.
Leverage can be defined as the use of assets or funds in which to use such a company must cover fixed costs or fixed expenses.
While the Forex itself, it can be interpreted to Leverage as we borrow money while at the brokerage firm with a certain amount and by providing a guarantee is called the “margin”.
The amount of margin is determined by the amount of leverage facilities we have, the greater the leverage (eg, 1:200) the required security was also more efficient and profitable.
Leverage is the magnitude of a unit affects the Profit and Loss means: no effect to the value of pips (points). Because leverage only affects the amount of margin only. If we use the leverage that big, then you can use the Lot the more necessary because the value Assurance Lot is just a little bit.
However, High Leverage means also contain a higher risk anyway, because of the use of lots that can exceed the normal power of your capital.
There are several kinds of leverage in the forex world, such as the following:
- 1: 1, which means the bail contract value = 100% (1:1 with no leverage).
- 1: 50, which means cash bail = 2% of the contract value.
- 1: 100, which means cash bail = 1% of the contract value.
- 1: 200, which means cash bail = 0.50% of the contract value.
You should not use the leverage is too low as 1:1, 1:50 because it requires no small amount of capital, but requires a larger capital. The ideal is 1:100 and 1:200.
Leverage the higher the risk is also higher if not used properly.