Forex Leverage Calculator
Forex Leverage Calculator
Leverage in forex is the ratio of traders of funds to the brokers credit provided to him by his broker. In other words, it is the capital forex traders borrow from their brokers in order to increase potential gains from the trade. Sometimes it is called a “financial shoulder” that brokers provide to the trader. Leverage is not fixed, but varies across the brokers and trader accounts. It is based on trading conditions and account specifications that forex brokers provide to traders.
Considerably, high leverage means not only high potential gains but also, may result in higher losses than trading with own funds. That is why a trader must be not only aware of potential loss, but also must be able to determine the required proportion of funds he needs to borrow by the use of the Forex Leverage Calculator.
Using the Forex Leverage Calculator
Calculations are simple, and can be done with couple of simple steps:
- Lot size is the fixed number that equals 100 000;
- Contract size is the number of lots (contract size of 2 means 2 X 100 000);
- Margin is the required marginal rate in both cases;
- Trade open price is the market price applicable for particular currency pairs for the given moment.
After hitting calculate you will get an amount of leverage or the amount of money that is needed to enter the trade.
The formula that is used for Forex Leverage Calculator looks like this:
((Lot * Contract Size) / Margin) * Trade Open Price * Margin Rate = Required Leverage
With the use of this formula you can easily determine the amount of capital needed to enter the trade.
Alternatively, here is a short formula to determine the proportion of leverage in the 1:X (1:50, 1:100 and etc.) expression.
Trade Size / Customers Funds = Leverage
Trade Size – total size of transaction in monetary expression.
Customer Funds – traders own capital in monetary expression.
Assume a trader is willing to make a purchase of Euros worth 100 000 USD, but the trader’s own capital available is only 2 000$ so far.
100 000$/2 000$ = 50 that means that per unit of own funds, the trader needs to borrow additional 50 units of funds. In such a case your required leverage is 1:50. If your trader account provides you with only 1:20 leverage it means that you may not enter the trade or you need to increase your leverage by switching to a higher level account or by negotiating with a forex broker.
Alternatively, transaction volume is 20 000$, you may enter the trade because 20 000$/2 000$ = 10. In such a case, a trader needs additional 10 units of funds per 1 unit owned. In such a case, one with available leverage of 1:20 may enter the leveraged trade with the broker’s financial support.
Forex trading carries a sufficient amount of risk. Trading with borrowed funds carries a high amount of risk. It might increase both: profit and loss.
Please do not mix Forex Margin and Forex Leverage.
Leverage enables traders to trade with greater amounts than physically held. While Margin is the monetary security that is kept aside by brokers to provide financial shoulder to trader. Mixing these two can result in losing money.