Leverage in forex from scratch

Pay special attention to this aspect of trading, understanding leverage largely depends on the success or failure of your operations in the market, anyone who does not master leverage is destined to lose their money, even if you let other traders trade your money. It is convenient that you know how leverage works to avoid being scammed.
To understand and master leverage you only need a basic calculator, it can be the one for windows, or the one for your smartphone, in general you don't have to do complex calculations that no one understands later, but as in forex you are going to invest your money to earn more money , it is necessary to master the subject so that later you will not be surprised.
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What is leverage in forex?

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Leverage in forex allows you to use a larger amount of money than you have deposited in the real account, this level of leverage is determined at the time of opening the real account, there are leverages ranging from 1 to 800 in some serious brokers , which implies that the broker can lend you the amount of leverage you have chosen for your operations, for example:
If when opening your real account you choose a leverage of 30 and your deposit is $ 1000 dollars or euros, the broker can lend you up to 30 times what you have deposited, with which now you can control a capital of $ 30,000, this money allows you to "buy or sell ” micro lots and mini lots .
In a real example, I trade with a leverage of 400 , with which I can give my deposit capacity to "buy or sell" standard lots, this results in a higher profit level, but beware! , also the losses are usually in proportion to what you are leveraging in the market.
If your pips are now worth $ 10, $ 30, $ 50 dollars, etc., consider that if the market goes against your operation, in the same way the level of loss can be high if you do not know how to control the risk of operations.

Simply put, leverage allows you to transact high value with minimal money.

Forex Leverage Reddit: how is it used in trading?

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To open a forex transaction you need a "margin" or a portion of your money, which will be multiplied by the level of leverage that your real account has, for example:
If you have a leverage of 200:1 - It means that your money will be multiplied by 200, and to open a trade you have to buy or sell “mini lots and standard lots“ .
Suppose a mini lot of the EUR / USD pair is priced at approximately of $11,800 , if your initial capital is $ 2,000 dollars (or euros) you are not enough to operate the mini lot, do you agree ?, but with the leverage yes, $ 2000 x 200 = $ 400,000 (four hundred thousand) with which you have excess to buy several mini lots, but the broker will not use all your money, it will only "leverage" a small "margin or portion" of your money to make the transaction, in this case only $ 59 dollars are needed, so that $ 59 x 200 = $ 11800, which is enough for you to obtain a mini lot and with this you can now execute the buy or sell operation without problems.
In forex the main idea is to trade micro lots, mini lots and standard lots, which give a certain value to the Pips that the price goes up and down, if you have low leverage and you want to trade with mini lots or standard lots maybe not It reaches you, you have 3 options: you deposit more money in your real account or you increase the leverage, or you do both, you deposit more money and you increase the leverage with which you have a lot of margin to operate freely.
With a mini lot, usually each pip that goes up or down the market you will earn $ 1 dollar, if you want to earn $2 then you need 2 mini lots ($ 11,800 x 2 = $37,600), if we continue with the example of the price of $ 11,800 per mini lot, the broker will use $118 of your money and it will multiply them by 200 so that it reaches you and the transaction can be executed without problems> $ 188 x 200 = $ 37,600.

You do NOT have to do these calculations every time you make an operation, your broker takes care of the calculation automatically.

One more example, suppose you want to earn $ 10 dollars (or Euros) per pip, for that you need to open a trade with a standard lot, let's suppose that this lot in the EUR / USD pair has a value of approximately $118,000.
(Yes, one hundred and eighteen thousand dollars), with a capital of $ 2000 dollars it is impossible to buy a lot, but if you have a leverage of 400 if you can, $ 2000 x 400 = $ 800,000. (eight hundred thousand dollars) that way you can buy or sell up to 7 standard lots ($ 70 dollars each pip).
The broker will not use all your money in the event that you only open a trade with 1 lot, the broker uses only $ 295 dollars ($ 295 x 400 = $ 118,000.) Enough to open the transaction without problems, if you want to earn $ 20 dollars per pip, will use $ 590 of your capital.
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"These data is indicative, since the price of the mini lots and standard lots changes every day and as a consequence also the necessary margin, not much but there you have an approximate"

It is important to bear in mind that if you want to invest in the forex market, some brokers allow you to make deposits in real accounts with only $ 100 usd and a leverage of 100, if you are going to operate the market with microlots (1000 units) it is an "ideal" capital to be tested in the market.
But if you want to trade with mini-lots (10,000 units) it is not so ideal since the percentage of risk taken from the account will rise dramatically, to enter the market with a mini-lot and a leverage of 100 a 1 needs $ 100 usd of capital which would represent 100% of your account and that is practically a "suicide" for your money.
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How to profit with leverage in forex?

It takes a bit of practice to understand the leverage that the broker provides, but I will try to make this aspect of trading even simpler.
First you must answer yourself the following questions, be realistic in your answers:

• How much money do you want to earn?
• How much money are you willing to invest to achieve your goals?

The first question is very open , but you must be specific in your answer, for example, I want to earn $2000 a month by trading forex. With such an answer you are specifying an amount and a period of time.
Now the second question is more specific and your answer should also be as specific as possible, for example: I have $3000that I can invest in forex without problem.
From the above you can better plan your forex trading by supporting yourself with leverage.
In the following example we will put as a deposit $ 3,000.00 and a monthly goal of $2000
The first step is to divide the target ($ 2000) into at least 20 trading days, with which we have ($ 2000/20 = $ 100), $100 of profit per day.
To earn $100 USD or EUR per day you use the power of leverage, let's say you have a leverage of 400:1 and your capital is $3000.
In forex you earn money for each pip in favor of your operation, each pip can be worth from $ 1 to several hundred dollars, the important thing is that you can assign the value you want to each pip, therefore, if you assign a value of $ 10 (USD or EUR) for each pip, you will only need 10 pips per day to achieve your goal of $ 100 profit per day ($ 10 x 10 pips = $ 100).
To allocate $0 for each pip you need a standard lot , this type of lot has a "high cost", let's suppose that in your metatrader platform you open a chart of the EUR / USD currency pair and its price is 1.2000 (remember that the fifth digit after the point it is NOT taken as a Pip), a standard lot is 100,000 units (one hundred thousand), or what is the same, one hundred thousand bills, so to buy a standard lot you will need $ 120,000 (one hundred and twenty thousand dollars)
Something impossible considering that you only have $ 3000 of capital (Note: The cost of the micro, mini and standard lots depends directly on the current price of the currency, if the EURO has a price of 1.2000, then if you want to use a standard lot in your operation, simply multiply the value of the currency by the number of units that the lot has to know the cost of that lot: 100,000 Units x $ 1,2000 = $ 120,000, logically the price moves every second, so it will not always cost the same in each operation you do, it can increase or lower the cost of the lot) .
If you have 400 of leverage, it means that you multiply by 400 your money, ($ 3000 x 400 = $1,200,000.) Yes! Now you have the power of One Million Two Hundred Thousand Dollars, with which you have plenty to buy several standard lots and literally raise the value of each pip, this is 100% REAL , once you have your real account you can confirm for yourself.
Obviously you are not going to have 1.2 million available to withdraw, we are talking about the ability to acquire lots in the market, there is the objective of leverage.
The broker by providing a leverage of 400, will only need $ 300 of your money, that portion of money is called "Margin", $300 x 400 = $120000, as you can see the broker will not use all your money, you have the control the value of the pips, you simply have to have your objectives clear.
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Example Summary:

• Monthly Goal: $2000
• Daily Goal: $100
• Value of each pip $ 10
• Lot size: 1 standard lot ($120000 value approx)
• Margin required: $300
• Leverage: 400
• Number of Pips needed: 10

As the price of currencies changes every second and every day, it is likely that the cost of a lot will be higher or lower, which affects the required margin, today you may need $ 300, 5 minutes later $ 309 tomorrow $ 290, the day after tomorrow $ 302 dollars etc.

Mastering leverage in forex

You have 100% control over your money and therefore you can control the risk at will.
I give you another example:
Initial Capital $1500, How can I earn in a similar way as a trader who has $ 3000 of capital if I have the same leverage?
In the previous example a trader has $ 3000 dollars (which in fact he does not use 100% because the broker only uses $ 300 for each standard lot he uses in his operations)
Your goal is also $2000 per month, therefore you will need to earn $ 100 per day, for this we can make several strategic combinations.
The $3000 trader only goes for 10 pips a day, each pip worth $ 10. Well, you can go for 20 pips a day by reducing the lot size.
More clearly, 1 standard lot assigns $ 10 for each pip, but when going for 20 pips you do not necessarily have to use a standard lot, you can assign a value of $ 5 to each pip, for this you have to use 5 mini lots since each mini lot assigns a pip value of $ 1 USD (or EUR)
The 5 mini-lots you need obviously have half the value of the standard lot, therefore you need $ 60000 (sixty thousand dollars) to obtain them is impossible with your $ 1500, right? But your real account has a leverage of 400 so you just go to need $ 150 dollars ($ 150 x 400 = $ 60,000), now if you can leverage that transaction and earn $ 5 dollars for each pip.
Example Summary:

• Monthly Goal: $2000
• Daily Goal: $100
• Value of each pip $5
• Lot size: 5 mini-lots ($60,000 value approx)
• Margin required: $150
• Leverage: 400
• Amount of Pips needed: 20

You can go for the amount of pips that suits you best, assign the pip value you want, set the profit level that suits you best, leverage gives you the ability to use lots, which give value to the pips.

Do you always have to do these calculations for each trade?

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No, all this is simply so that you realize how leverage is used, once you define the risk you want to take in forex, you can choose the lot size you prefer, just like I do in my trading , determined a lot size and I keep it for several trades, when my money goes up I just raise the lot to earn more.

Values ​​that the market assigns to the lots

• USD = Unted States Dollar
• Micro Lot = 1,000 (Thousand Units)
• Mini Lot = 10,000 (Ten Thousand Units)
• Standard Lot = 100,000 (One Hundred Thousand Units)
• When you trade with 1 Mini-Lot, each Pip is worth $ 1 USD
• When you trade 2 Mini Lots, each Pip is worth $ 2 USD, and so on with all the others:
• 3 Mini-lots = $ 3 USD for each Pip
• 4 Mini lots = $ 4 USD for each Pip
• 5 Mini lots = $ 5 USD for each Pip
• 6 Mini lots = $ 6 USD for each Pip
• 7 Mini lots = $ 7 USD for each Pip
• 8 Mini lots = $ 8 USD for each Pip
• 9 Mini lots = $ 9 USD for each Pip
• 1 Standard Lot = $ 10 USD for each Pip
• 2 Standard Lot = $ 20 USD for each Pip
• 3 Standard Lot = $ 30 USD for each Pip
• 4 Standard Lot = $ 40 USD for each Pip
• 5 Standard Lot = $ 50 USD for each Pip
• 6 Standard Lot = $ 60 USD for each Pip
• 7 Standard Lot = $ 70 USD for each Pip
• 8 Standard Lot = $ 80 USD for each Pip
• 9 Standard Lot = $ 90 USD for each Pip
• 10 Standard Lots = $ 100 USD for each Pip