Do You Know How To Calculate Leverage Properly?

The amount of leverage ratio available to traders usually depends on the broker’s offering, and the ratio varies depending on the rules of the regulator which often differs for each region. For your information, leverage in forex and stocks differs due to the level of volatility and liquidity available. Traders need at least two things to calculate leverage, they are by looking at the trade size and margin percentage. Brokers often offer a percentage margin to calculate the minimum equity required for initial trading capital. The desired margin and deposit can be changed. Once the trader knows the margin percentage, simply multiply it by the trade size to find out the amount of equity required to open a trade. Simply put, equity is equal to the margin percentage times the trade size. Additionally, if you only want to trade with regulated high leverage brokers, you may want to check them out at immediately.

If you want to calculate leverage, it is sufficient to divide the trade size by the required equity. Let’s take an example of calculating leverage using this formula. The margin percentage is 10%, and the trade size is 10 thousand currency units (mini lot) for USD / JPY (equivalent to USD 10 thousand).

According to the formula, equity = percentage of margin x trade size, or 0.1 x USD 10,000 = USD 1000. While the formula for leverage = trade size / equity, or USD 10,000 / USD 1000 = 10 times (or 10: 1). This example is a basic calculation of how forex is used to open a trade.

It should be noted that a trader should not make it easier to calculate the minimum amount required to open a trade and then give the same amount of capital. Traders should be aware of a margin call if the position moves in the opposite direction so that the account equity is below that required by the broker.

Trading forex with leverage is indeed able to bring more potential for profit, but also has the potential to give a large number of losses to traders. We recommend that you make detailed calculations and if necessary, do the simulation several times before you make the real trade with leverage.

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