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Forex leverage or Fx leverage

Experienced traders who want to increase their profits often use leverage. This enables them to use small amounts of capital to gain a large amount of profit. However, leverage is a double edged sword and leverage has its dangers too. Traders must be well advised to understand what those dangers are before actively participating in Fx leverage trading.

The ratio used in fx trading are usually 1:20, 1:40, 1:50, 1:100. Forex Leverage of 100X means that, you only need to deposit 1 of 100th of the contract size. So, when you buy 1 lot of currency pair which is worth let say USD100,000 you only need to use USD1,000 in the trade.

Calculation of leverage :-

If you bought 1 lot of USD/JPY at 121.22 and sold at 121.26.

Without leverage you gain 4 pips. = (0.04/121.22)x100% = 0.033%

With 100x leverage you gain 4 pips = 0.033% x 100 = 3.3%

Now you see the power of leverage! But always remember FX leverage is a double edged sword, it swing both way!