Use the leverage calculator to quickly find our how much leverage do you need to open a position
What is Forex Leverage?
Leverage is investing money with borrowed funds. Unlike a regular trade where you purchase a $10 item with $10, in Forex you can use leverage to buy (or sell) the same value with less funds, for example buy $10 with $1 margin (10:1 leverage).
Example leverage for a $100 account:
Leverage increases the potential of trading profits, however with increased leverage comes increased risk and therefore you can lose more.
Leverage is the ratio between the notional value of a trade and the currency used to open the trade, usually the domestic currency of the account. For example, a European trader will have a base currency of EUR while a US trader will have the base currency of USD.
The amount of leverage you use in your trading account determines the margin level you must maintain (otherwise you can get a margin call).
How to calculate leverage ratio?
A leverage ratio calculation is complex however with our forex leverage calculator you just need to input a few values and calculate it easily:
Currency pair - the currency you’re trading
Account currency - your account deposit currency
Margin - how much margin do you wish to use for the trade
Trade size - contract size or number of traded units (1 lots = 100,000 units)
Once calculated, you will see the exact leverage required to open the trade. Keep in mind that the leverage shown is the minimal leverage - a lower leverage will not allow to open the trade while a higher leverage can be used as long as your broker allows it.
How to calculate operating leverage?
The operating leverage is the effective leverage used in your account to hold the open positions.
In other words, it is the ratio between total net open positions to total margin on your deposit.
Effective or operating leverage cannot exceed the max leverage of your trading account.
For example: if you have an open EURUSD trade for 0.5 lot size and a deposit of 1000 EUR and used a margin of 50 EUR, this means your effective leverage is 1000/50=20. This means that every 10 EUR in value of the trading position is controlled by 5 EUR of your account balance.
How much leverage should I use?
That would depend on your risk tolerance. A leverage of 50:1 means that a change of 2% in price could wipe out your account (50*2=100%).
Don’t over leverage your positions and keep using a leverage that is suitable for your trading style. Usually a high leverage is used with small accounts or for short term trading methods such as scalping (as price fluctuation is limited) while long term trading systems such as trend-following (since price can fluctuate greatly) or large accounts use a lower leverage.
What leverage should I use?
That would depend on several factors:
- How much of your deposit are you willing to lose?
- Do you have a working and successful trading system?
- Are you trading full time or just as a hobby?
You have probably heard of the phrase - “never invest money that you can’t afford to lose” and that is a key rule that you must follow. If you have put all of your savings into your trading account, use as little leverage as possible as you wouldn’t want excessive risk affecting your savings.
Moreover, have you fully and thoroughly tested and backtested your trading system on a demo and on a live account before going all in? If not, it is best to scale back and trade with a small amount and/or a low leverage.
Finally, what is the purpose of your trading account? If its just a side hobby than you most likely invested just a small amount of funds that you can play with and don’t mind losing however if you’re a full time trader depending on the profits of your account, low leverage is the way to go.
Is higher leverage better?
Absolutely not. A losing trading system will lose faster with a higher leverage so you should use an appropriate leverage for the correct scenario. Important factor to consider is that with leverage you can lose more than you deposit - depending on your broker’s policy, so although it is very tempting to choose the highest available leverage, it is not always the best choice.
FAQs
Simple Leverage Ratio: Debt-to-Asset
One of the simplest leverage ratios a business can measure is its debt-to-asset ratio. This ratio shows how much a company uses debt to finance its assets. You can calculate this metric by dividing the total debt—both short-term and long-term, by total assets.
How risky is 1 500 leverage? ›
In summary, 1:500 leverage is a powerful tool in the world of trading that allows traders to control larger positions than they could with their own capital. It comes with significant risks, such as increased potential losses, margin calls, and forced liquidations.
What is the best leverage for a $100 account? ›
The best leverage for $100 forex account is 1:100.
Many professional traders also recommend this leverage ratio. If your leverage is 1:100, it means for every $1, your broker gives you $100. So if your trading balance is $100, you can trade $10,000 ($100*100).
What is the best leverage for $300? ›
$300 is the minimum amount of money required in a mini lot account, and the best leverage on this account is 1:200. This would mean you will have $60,000 to trade with. Other leverage you can use in forex trading include; 1:50.
How much is $100 with 10x leverage? ›
For example, if you have $100 in your margin account and you use 10x leverage, you can control a position of $1,000. If the price of the asset moves up by 10%, you will make a profit of $100.
What is the formula for calculating leverage? ›
Below are 5 of the most commonly used leverage ratios: Debt-to-Assets Ratio = Total Debt / Total Assets. Debt-to-Equity Ratio = Total Debt / Total Equity. Debt-to-Capital Ratio = Total Debt / (Total Debt + Total Equity)
What is the best leverage for beginners? ›
1:1 Forex Leverage Ratio
According to experts, low leverage can allow you to minimize risk and get reasonable returns depending on what you deposited. This makes the 1:1 ratio the best leverage to use in forex, especially for beginners who want to start with large capital.
What leverage do professional traders use? ›
Leverage of 1:100 means that with $500 in the account, the trader has $50,000 of credit funds provided by the broker to open trades. So 1:100 leverage is the best leverage to be used in forex trading.
What is the best leverage for a $10 account? ›
The ratio displayed by a broker determines the extent to which a trader can amplify their position size relative to their account balance. As an example, imagine you had $10 in your account, a leverage of 1:100 would allow you to control a position as large as $1,000.
What is the best leverage for a 20 dollar account? ›
Generally , it is recommended to use a lower leverage of 1:10 or 1:20 for smaller accounts . This allows for more controlled and conservative trading , reducing the chances of significant losses . It is important to always remember that with higher leverage , the potential for both gains and losses is amplified .
You have $500 on your account. With 1:100 leverage, this amount will be enough to make 50 trades of 0.01 lot each.
What is the best leverage for a $5 dollar account? ›
Generally, it's recommended to use lower leverage when you have a smaller account size to minimize the risk of significant losses. A leverage of 1:10 or 1:20 can be a good starting point for a $5 account.
What lot size can I trade with $100? ›
When you trade forex with $100, it's recommended to open trades of no more than 0.01-0.05 lots so that risks should not exceed 5% of the deposit amount. To trade forex with $100, you will need the maximum leverage to lower the margin amount blocked by the broker.
Do you have to pay back leverage? ›
Anyone who's taken out a mortgage to buy a house or paid for holiday gifts with a credit card has used leverage—borrowed money that enhances your immediate buying power but must be paid back.
How much leverage is bad? ›
A figure of 0.5 or less is ideal. In other words, no more than half of the company's assets should be financed by debt. In reality, many investors tolerate significantly higher ratios.
How do I know what leverage to use? ›
The best leverage in forex markets depends on the investor. For conservative investors, or new ones, a low leverage ratio of 5:1/10:1 may be good. For seasoned investors, who are more risk-friendly, leverages may be as high as 50:1 or even 100:1 plus.
What is 20x leverage on $100? ›
Opening a trade with $100 and 20x leverage will equate to a $2000 investment.
What leverage should I use for $10? ›
Understanding Leverage
The ratio displayed by a broker determines the extent to which a trader can amplify their position size relative to their account balance. As an example, imagine you had $10 in your account, a leverage of 1:100 would allow you to control a position as large as $1,000.
What is the best leverage ratio to use? ›
A figure of 0.5 or less is ideal. In other words, no more than half of the company's assets should be financed by debt.
