Margin and Leverage on Forex Trading

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Margin and Leverage on Forex Trading


Margin and Leverage on Forex Trading

The margin (MMR) required to open positions for each currency pair is different. In the example above is the amount of margin needed to open one 1K position (1000) units of currency pairs on a mini account. Suppose you will open one Open Buy position of USD / JPY as much as 1K units so you need to guarantee capital of $ 2.5 of your total capital. So the size of the margin is determined by the size or trade volume ( trade size ) of the forex account if the size is greater then the amount of margin will be even greater. You do not need to calculate the amount of margin needed for each currency pair because the broker has given the value.

Leverage on Forex Trading

Leverage on forex trading is a concept with margin and has a function to be used to control trade volume that exceeds our capital. Traders can use leverage to increase profits when trading forex but it must be remembered that leverage can also increase potential losses. So what traders need to understand is how to use this leverage wisely.

Suppose you have a capital of $ 1000 and want to trade 10K (10000) units of USD / JPY or equivalent to $ 10.0000. You could say you use leverage of 10 times or 10: 1 and when you buy 20K (20000) the USD / JPY unit says that your leverage is 20: 1.

The following is an example of how leverage is used, for example there are two traders namely Anton and Budi with a capital of $ 1,000 each and will trade a currency pair with a volume of 1K (1000) units for example a USD / JPY currency pair so the following is a simulation of each loss 25 Pip if the use of leverage is not done wisely.

For Anton who use leverage inappropriately by opening excessive trading positions 20 times with the size of each 1K lot will suffer losses of as much as $ 500 (50%) of the capital owned for each loss of 25 Pip. Unlike Budi, who knows how to use leverage by opening trading positions 2 times with the size of each 1K lot, it will suffer a loss of only $ 50 (5%) for every 25 Pip losses.

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