You guys are probably getting sick of me always talking about leverage but the reason why I keep going over this is because it’s very important! I see alot of new traders putting in a very low minimum deposit to start quickly and next thing you know they lose all of it. Traders often find themselves controlling a huge sum of money with little cash outlay on the table. This table below will demostrate how a high trading margin can impact on the trades ROI
| The Power of Leverage | ||||
|
Trading Margin
|
Capital
|
Purchase Power
|
Money value of 1% Profit |
ROI of capital
|
|
2:1
|
$1,000
|
$2,000
|
$20
|
2%
|
|
10:1
|
$1,000
|
$10,000
|
$100
|
10%
|
|
50:1
|
$1,000
|
$50,000
|
$500
|
50%
|
|
100:1
|
$1,000
|
$100,000
|
$1,000
|
100%
|
|
150:1
|
$1,000
|
$150,000
|
$1,500
|
150%
|
|
200:1
|
$1,000
|
$200,000
|
$2,000
|
200%
|
Depending on your trading style personality I think you can select your real leverage amount. Leverage has a high potential to enlarge your profits or losses and the greater the amount of leverage on capital you apply, the higher the risk that you will assume. Grace Cheng a well known forex trader has a nice chart that lets you see how the trading accounts of two traders compare after a 100 pip loss. look below.
| - | Trader A | Trader B |
| Trading Capital | $10,000 | $10,000 |
| Real Leverage Used | 50 times | 5 times |
| Total Value of Transaction | $500,000 | $50,000 |
| In the Case of a 100-Pip Loss | -$4,150 | -$415 |
| % Loss of Trading Capital | 41.5% | 4.15% |
| % of Trading Capital Remaining | 58.5% | 95.8% |
| Figure 1: All figures in U.S. dollars | ||
Hope this gives you a better understanding on how important it is to pick your leverage wisely. If you have any questions shoot me a comment.
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