What is the best leverage level?
In the previous step, if you trade with a leverage level close to maximum level offered by the FOREX trading company, you’ve learned to immediately close the order.
To avoid forced closing order, during real trading,you should trade with a Leverage level less than half of maximum leverage.>
So how to calculate the actual leverage?
Below shows the calculation formula for the actual required leverage.
Calculation formula for effective leverage
“Estimated exchange rate × trading units” ÷ “Asset” = “Effective leverage”
For example, let’s say you trade 10000 units of EUR /USD at the EUR /USD exchange rate of 1/1 and your trading volume at that time is 100 $, then the leverage formula is applied as below
“1.0$×10,000 currency units” ÷ “$100” = “100:1”
In the example above, the effective leverage is 100 times.
If you don’t use leverage in your transaction, you can not trade it without an initial capital of 1.0 × 10,000 currency=$ 10,000 but if you use leverage up to 100 times then you can trade with only $ 100.
Company that offers high leverage level
“XM”, FOREX trading company, can provide a maximum leverage of 888 times,you can trade also at the leverage level of 400 times, which is half of the maximum leverage.
If you say 400 times, in the example above, with a capital of $ 25, you can trade 10,000 currency units. Or, with $ 100 capital, you can also trade 40,000 currency units.
Of course, you can also trade 1,000 currency units with a capital of $ 2.5.
What is the trading volume?
To trade FOREX, you can specify the trading volume as “10,000 currency units”or “1,000 currency units” as the formula above.
In fact, you can enter lot numbers that each FOREX trading company decides such as 1 lot=10,000 currency units, 1 lot=100,000 currency units.
If the company trades 1 lot=100,000 currency units, then 0.1 lots=10,000 currency units, 0.01 lots of 1,000 currency units. If it is 0.7 lots, then 70,000 currency units.
Moreover, the technical term for minimum capital required for trading currency is called “Deposit”.
In the next step, our website will discuss deposit.
If you think “Do the difficult part later, first quickly try FOREX trading” then the account used for free practice is recommended. With the demo account, you can both practice trading and learn about leverage.