We analyze the concepts of "leverage" and "lot"

We analyze the concepts of "leverage" and "lot"

We analyze the concepts of

We analyze the concepts of "leverage" and "lot"

Today we will talk about a topic that confuses many traders in the Forex market. It is extremely important to know and understand it, and it helps you manage your funds better. Newcomers to the market often fall into the trap, because they do not have any idea about it and do not know how to use it.

We will talk about leverage!
What is it? In simple terms, it is an opportunity to do more with less effort. This is also one of the secrets used by successful people to increase their wealth. This is such a broad-based concept that it can be used both in finding people to work with and in buying new technologies to increase sales.

And if You are still wondering how to apply this to the Forex market, then pay attention to the following paragraph.

So, Your broker will act as a Bank and offer you money to trade in debt (let's say $100,000). In return, the broker will only set the minimum recommended Deposit amount (also known as Forex margin) for You. This amount may vary from broker to broker.

To better understand how this principle works, look at the table below.

Real amount in units of measurement leverage Minimum Deposit amount
100 000 1:1000 100
100 000 1:100 1 000
100 000 1:2000 50
100 000 1:1000 1 000
Some explanation:
The actual amount in units of measurement is the amount that the trader wants to use in trading. This amount may vary depending on the client's comfortable Deposit.

Minimum Deposit amount-knowing how much the trader wants to use for trading and leverage, You can calculate your minimum Deposit.

For example, look at the first column – let's say You want to trade the amount of $100,000 and the broker's suggested leverage of 1:1000 (which corresponds to 0.1% of the desired amount). In this case, 0.1% of $100,000 will be $100. This will be Your minimum Deposit.

if you want to trade with $100,000 and 1:100 leverage, Your minimum Deposit will be $1000
if you want to trade with an amount of $100,000 and a leverage of 1: 2000, Your minimum Deposit will be $50
What if You want to trade $200,000 and the broker's leverage is 1: 1000? Your minimum Deposit must be ...

Deposit amount leverage Real amount in units of measurement
200 1:1000 200 000
So, knowing how much you want to have on your account balance, make sure that You are familiar with the broker's leverage in order to calculate the minimum Deposit amount.

Now we are familiar with the concept of leverage.
Where can I find a broker with the maximum leverage in Forex? We already found it! Trade with leverage from 1: 50 to 1: 2000.

Let's talk about lots


Let's imagine a Forex lot as a tool for managing and controlling leverage. You can see this sign in Your platform:

 

Note that one way or another, in this table, the lot is equal to "1.00". This means that the amount for which you open a currency purchase transaction is 100,000. To understand the quantities in more detail, let's look at the image.

Lot size Real amount in units of measurement
1.00 100 000
0.10 10 000
0.01 1 000
0.50 50 000
5.00 500 000
Therefore, if You change the lot size, You also change the actual amount involved in the trade.

if you set a lot at 0.10, the real amount of funds in the trade will be 10,000;
if you set a lot of 0.01, the real amount of funds in the trade will be 1,000.
The lower your lot size, the less risky strategy you choose, the safer your trading is, but also the lower your potential profit.

If You are still a beginner, it is best to test how trading works before investing a large amount of money. Very useful will be a Demo account that will act as a Forex simulator of real trading and teach you useful things.

Please note that we used 100,000 conventional currency as the unit of measurement, not dollars, since the unit currency depends on the transaction currency.

For example, let's imagine that the Euro/Dollar quote is now 1.2220 and You open a Euro account (if you live in Europe) with a leverage of 1:1000 and a Deposit of 1000 euros. You want to open a deal for "1.00" lot for this currency. Accordingly, Your 100,000 euros will be converted into 121,200 dollars.

If this example is not so obvious, then do not worry, we will explain everything to you in training webinars. For now, just remember that "the actual amount of funds in units of measurement" depends on the currency.

We would like to present you a description of the ADX indicator that will help you successfully use this financial instrument in trading.

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