Leverage Calculation Forex : How To Calculate The Correct Forex Leverage

Leverage Calculation Forex. How do you calculate forex leverage so you don’t choose the wrong one? Before entering into the calculation, it’s good to know the information about the leverage itself. Do you understand the concept of leverage?

Or do you already understand forex trading? Your understanding of basic information from the concept of leverage and forex trading influences the decisions that will be taken. The reason is because all of this information is interconnected when you trade.

So it’s important to understand it thoroughly. It’s okay if you don’t understand it well because in this article you will be invited to understand the concept of leverage in forex trading. Starting from the definition to how important it is to use leverage in forex trading.

Last but not least, you will learn how to calculate leverage. Ready? Check out the information below until the end!

Get to know Leverage Calculation Forex

Leverage is a concept of loans provided by brokers to traders. This loan is useful for adding or maximizing the profits obtained by traders. On the other hand, forex is an instrument that makes buying and selling currencies in a short time.

Forex is an abbreviation of Foreign Exchange or currency exchange. This means that forex leverage refers to the concept of lending a broker to a trader when trading with currencies.

How Leverage Works

In the past, everyone who wanted to open an account for forex trading needed to spend a very large capital of $ 100,000. This much money is certainly not owned by everyone. But the existence of leverage enables everyone to be able to carry out currency buying and selling transactions with far less capital.

Loans in forex trading work in much the same way as loans at banks. Everyone who doesn’t have enough capital for a business or home renovation can take out a loan so that their wish can come true.

In trading, every trader can also make a loan so they can open an account. The loan amount that can be chosen by each trader also varies. Generally, forex loans or leverage are in the form of a ratio like the table below.

Leverage Margin or Capital Required
1:100$1000
1:500 $200
1:2000$50

The leverage table above is just an example to inform you about loan calculations. So when you choose a leverage of 1:100, you only need to provide as much as $ 1000. It means that the loan you made is $ 100.

Is Leverage Required When Trading Forex?

If you ask whether or not leverage is needed in forex trading, the answer will be returned to each trader. Each trader has his own calculation whether they need leverage or not. The fact is that leverage does not affect the profits or losses that each trader experiences.

Profits and losses are only influenced by price movements and technical analysis that has been carried out by each trader. If you have large capital or margin, leverage is not really needed.

The reason is that the margin in the trading account is still sufficient to open a position. But when you don’t have much margin, using leverage can be a solution so you can open a position.

Keep in mind that the loan you use does not necessarily only provide benefits. If it turns out that the trading carried out is profitable, then it is certain that the loan will not become a debt burden.

But when the trade you make suffers a loss, the loan you used is also lost and needs to be returned. So a large loan amount actually comes with a much bigger risk.

Therefore every trader must think about and calculate in advance the amount of loan they want to take. Don’t let today you take large leverage and then in the end you can’t return it.

The calculation of leverage in forex trading is useful for telling you how much capital to spend. In addition, you can take into account whether the choice of leverage is suitable or not.

The reason is that there are so many novice traders who are still confused about the amount of leverage they need to take. Actually there are no rules in taking loans. As long as you have sufficient capital, no matter how much the loan is taken, it will not cause problems.

But if you are new to the world of trading, choose a low loan

more recommended. Taking low leverage will not stress you or worry too much because the loan amount that must be returned is not too much.

So how much leverage is suitable to use? You can determine it based on the current capital. How to find out how much capital is needed to trade can be done using the following formula:

Margin = Leverage x lot (volume) x contract size

The description of the formula is as follows:

Margin = the capital you have to provide.
Leverage = loan amount.
Lot = unit number of instruments purchased.
Contract size = number of instruments in one lot.

Assume that you currently have $200 in capital. But you need as much as $100,000 to be able to trade. That means the capital you have needs to be added by borrowing from a broker. How to find out the leverage that must be taken can be done with the following formula:

Margin = leverage x lots (volume) x contract size
$200 = leverage x 1 x $100,000
$200$100,000 = leveraged
1500 = leveraged

So the suitable leverage to take is 1:500. If the broker you use can provide a 1:500 loan, the leverage can be taken. Keep in mind that the amount of leverage that can be taken depends on the broker you use. Each broker has its own rules for providing loans to traders.

That’s how to calculate the correct forex leverage. So you don’t need to be confused about choosing leverage when you want to trade forex. All you have to do is enter the amount of capital and lots you want to buy into the formula, so you can get the right leverage results.

Hopefully the information above adds to your insight into the world of trading. Studying various information in trading is certainly important and must be done. But don’t stop there. You also have to find out information about the broker that will be used.

Is the broker currently used safe and trusted? Does the broker provide good and friendly service to its customers? If you are looking for a broker that is safe, trusted and provides the best service then HSB is the right choice.