Forex
What is leverage?
Leverage is a loan from the broker is given to the trader, so the fund traders have greater purchasing power. Notified as leverage ratio, eg 1:1, 1:100, 1:500, and so forth. That is, if there is funding $ 100 at 1:100 leverage the $ 100 it has a strength equivalent to $ 10,000. If leverage 1:500, then $ 100 funds had the ability to conduct transactions equal $ 50,000 or 500x fold greater than the nominal funds itself.
What is Margin?
Margin is a guarantee given to the broker every time you open a position. Influenced by the size of margin leverage and trading volume (lots), which was opened by the trader. Margin calculation formula is: Volume x Leverage (Lot) x Contract Size.
Contract Size
To contract the size, must be converted to USD. Beginning with the pair USD / xxx as USD / JPY, USD / CHF, USD / CAD, etc. have a contract size of 1 lot = $ 100,000 (already in the $, do not need to be converted). Meanwhile, beginning with non-USD currencies, eg EUR / USD has a contract size of 1 lot = EUR 100 000 which means the equivalent of (EUR 100 000 x 1.435) EUR or $ 143,500 when the exchange rate of EUR / USD 1.435. Meaning, if EUR / USD rose to 1.45 then the contract size will be changed again.
WARNING
Leverage profitable on the one hand, because it would provide greater benefits and allow us to play the forex with a smaller capital. But on the other hand, with 1:1000 leverage we can open a position far from the ability of our funds. Therefore, it is wise to leverage and your margins, because the loss could be greater than our capacity, due to a lack of understanding of the risks of leverage, and this margin.
