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Understanding Forex Leverage, Margin Requirements & Trade Size

719 ratings | 53777 views
Understanding forex leverage, margin requirements and sizing trades for successful trading.
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Monno Soeung (23 days ago)
Thank you
DynoTrading (27 days ago)
Nice video thanks
joshua dixon (1 month ago)
Very informative, thank you
TwoStarII (2 months ago)
a quick question: I am trading on a demo micro lot (size = 0.01) with leverage 25:1 but my trade is moving as follows for each pipette: $0.01, $0.02, $0.03 etc.. but since I have leverage of 25:1 shoudn't it move like this $0.25, $0.50, $0.75 or am I missing something? To add onto this, I am in profit of 10 pips which is $1 but shoudn't I have $25 because of leverage?
Mindy Yost (2 months ago)
On your questions 1 and 2 you are correct. About Question 3 - This is something that many new forex traders do not understand... When you trade forex it is VERY IMPORTANT that you deposit WAY MORE money in your Forex account than you plan to use for the deposits on the trades that you are going to make - because if the trade you have entered goes NEGATIVE before it goes positive, your account will be DEBITED the pip value for every pip the trade goes negative. If, after you have entered a trade and made the deposit (margin requirement) to be in the trade, if your account balance has no more money in it, then if the trade goes even a few pips negative, your account will hit a "MARGIN CALL" where the broker will close your trade FOR A LOSS. So, if you plan to make a 1 micro lot trade - no matter what leverage you are using - if your trade has the potential to go 100 pips negative your account would need to have AT LEAST $10.00 more dollars in USABLE MARGIN to cover that draw out of your account while the trade is negative. So, if you are using 20:1 leverage, you would have had to start with an account balance of at least $50.00, and if you had a leverage of 40:1 you would have had to start with an account balance of at least $30.00.
TwoStarII (2 months ago)
+Mindy Yost Thank you have shared some light especeially with this statement: "So, a HIGHER LEVERAGE does NOT change the PIP VALUE of the trade, it only changes the DEPOSIT amount that you have to put up to be in the trade." Question 1: So just to clarify, if I have leverage of 25:1 and you have leverage of 50:1 and we enter a MICRO LOT trade at the exact same time with the same currency pair and both profit 2 pips we will both have made $0.20 each, the only difference is that I deposited $40 and you deposited $20 to open up that trade? Question 2: if we both closed our trade at 2 pips PROFIT: I would have $40 + $0.20 = $40.20 you would have $20 + $0.20 = $20.20 if we both closed our trade at 2 pips LOSS: I would have $40 - $0.20 = $39.80 you would have $20 - $0.20 = $19.80 Question 3: What if I had deposited $80 even though my leverage (25:1) only required a margin requirement of just $40 and I doubled my deposit, does that have any impact?
Mindy Yost (2 months ago)
No, if you have entered a MICRO LOT trade (0.01 trade size) your trade is controlling (approximately) $1,000 worth of currency. and the PIP VALUE (meaning the amount each PIP is worth) is approximately $0.10. When you see the price changing 1 CENT at a time, you are seeing price movement (and profit or loss movement) in one-TENTH of a pip increments. When the profit on the trade gets to $0.10 then you will have 1 pip of profit, when it gets to $0.20 you will have 2 pips of profit, and so on. Now let's talk about the Leverage issue: If you were to have entered your trade (as stated above) WITHOUT ANY LEVERAGE, you would have had to put up $1,000.00 to be in that trade to control that $1,000.00 of value in the overall forex market. But, your broker gave you 25:1 (twenty-five to one) LEVERAGE, so this means that the broker only charged you a deposit on your trade of one/TWENTY-FIFTH (1/25) of the actual value of the position. So in this case your MARGIN REQUIREMENT (another word for "deposit") was probably $40.00, and since this DEPOSIT will be returned to you when you CLOSE THE TRADE, this is NOT a COST but rather just $40.00 of your Account Balance that is currently UNAVAILABLE to you to use while that position is still open. So, a HIGHER LEVERAGE does NOT change the PIP VALUE of the trade, it only changes the DEPOSIT amount that you have to put up to be in the trade. The higher leverage you use, the LOWER the cost of the trade deposits will be. Hope this explanation helped. I offer complete mentoring services thru my website: www.MindyYost.com as well as Classes and Workshops to help you become a world-class trader. I also offer Auto Trading software that will allow you to profit from the forex market even when you DON'T have a good understanding of how it all works! Cheers, Mindy
mike004692 (2 months ago)
Hey , Speak up , your whispering ,
Mindy Yost (2 months ago)
The audio for this video does seem to be degrading over time. I have no idea why, but I will see if I can fix it. Thanks for your input.. Cheers, Mindy
achen415 (2 months ago)
I never done a trade and am still trying to understand leverage. Your explanation is more simple compared to other videos I've seen.
Sammy Daluz (3 months ago)
Thanks Grandma
Sammy Daluz (3 months ago)
+Mindy Yost 😂📈📈🚀🚀
Mindy Yost (3 months ago)
You are quite welcome, and I will wear the designation of "Grandma" as a badge of honor because... gettin' old is not for wussies.
Ms karim (3 months ago)
Oh my Goodness! you are incredibly excellent in explaining things.... Thanks for the help
Bernard Rolle (3 months ago)
Great Video...! So hypothetical question If I don’t use a stop loss and I have $1,000 in my forex brokerage account and let’s say my broker gives me 1:200 leverage if I place my trade 1.00 standard lot and the price goes against at first -70pips but then turn around and goes in my favor 140pips will my broker margin call me or close my account or will they let me be down temporarily -70 and give me a chance to get back positive or would the $500 free margin cover me while I’m down -70 until I turn back profitable....?
Mindy Yost (3 months ago)
Well... in my opinion, you should never be trading a full lot trade with a account balance of $1,000. At 200:1 leverage, your margin requirement for entering the trade will be about $500. This means that you would have $500 left in usable margin to manage your trade. Assuming that the pip value of the pair you are trading is $10 per pip, then you only have enough usable margin for your trade to go -50 pips before you would run out of usable margin and the broker would have the right at that point to margin call your account - close your trade for NEGATIVE $500 - and then give you back the funds that you had in margin requirement...so... long story short, you just lost HALF of your account. It is critical to always trade in a way that you can be relatively certain that you will not run out of usable margin! With an account balance of $1,000, you really should never have more than 1 or 2 open positions and they should be ONE MINI LOT each, Hope this helps. Cheers, Mindy
SpanNew Talks (3 months ago)
good
Leonard Emini (4 months ago)
I didn't understand anything. Will I lose with 1:1000 or with the broker lose money? and how much
Mindy Yost (4 months ago)
Hi Leonard, I'm not exactly sure what you are asking but I will try to answer you anyway. First it is important to understand that there are only two ways to lose money trading forex. The first way to lose is to close a trade when it is negative. People do this every day - and on purpose - by putting STOP LOSSES on their trades. The second way to lose money trading forex is to have a "Margin Call" and that is when you run out of "Usable Margin" (also known as "Free Margin" which is the extra money you have in your account to accommodate the negative p/l that accrues in trades when they are negative. If you trade or trades go negative to where the negative p/l totals MORE than the amount of funds that you have in Usable Margin, the broker will CLOSE YOUR TRADES and force you to take those losses. In a margin call situation, typically your account will still have some money left in the Balance because when the broker closes your trades you are REFUNDED the amount that you put up to be in the trade. That money (also know as MARGIN REQUIREMENT) is the deposit you made when you entered the trade. If you are trading with a 100:1 leverage you would put up approximately $100 per mini lot traded. If you are using 1000:1 leverage you would have put up approximately $10 per mini lot traded. So... if you hit a margin call, you can see that end the end you would have more money LEFT OVER after a margin call if you used the LOWER LEVERAGE. But either way, you would have lost MOST of the money that you had originally put into your trading account. The whole point of trading forex is to MAKE MONEY and I teach people how to trade without EVER having to take losses on their trades and how to NEVER hit a margin call. Check out my website: www.MindyYost.com for information about the classes, workshops and mentoring services I offer. Cheers, Mindy
Facts Land (4 months ago)
Great video. Is there a way before I send any funds to my account to find out if I go for 1 lot (100X leverage) how many pips margin do I have before my position gets liquidated? Thank you
Facts Land (4 months ago)
Thank you for your prompt reply. Really appreciated it. Happy New Year and take care. +Mindy Yost
Mindy Yost (4 months ago)
So, let me understand you correctly... You are going to make a 1 LOT trade? A 1 LOT trade is the equivalent of 100,000 units of the BASE currency - so if you are trading USD/CAD (for example) that would be the equivalent of $100,000. A 1 LOT trade has a PIP VALUE of $10.00 per pip. Next - I am assuming from your message that you are trading with a 100:1 (one hundred to one) leverage. What this means is that the DEPOSIT that you will need to make to open the 1 LOT position will be one one-hundredth (1 100th) of the actual value of the trade - so in this case your deposit required to enter the trade would be $1,000.00 ($100,000/100). So now, you would like to know how soon it would be before your account would hit a MARGIN CALL (or, liquidation). The answer is totally dependent on how much money you have in the account. Let's assume that you opened your account with exactly $1,000.00 - in this case you would be spending the entire balance to open the position and because of the fact that EVERY trade opens in the negative (because of the spread) you would instantly hit a margin call and lose a little bit of your money (would depend on the broker and the spread at the time, etc.) but your account balance would be replenished by the remainder of your deposit to enter the trade. Now, let's assume that you opened your account with $5,000. In this case, to enter that same 1 LOT trade, your account would be debited $1,000 for entering the trade (for the deposit), so your account balance would still have $4,000 left to manage the trade with. If the pip value is $10 per pip, then your trade could go 400 pips NEGATIVE ($4,000 / $10 = 400) before you would hit the margin call - but if it did hit the margin call, you would be left with a balance in your account somewhere near $1,000 - which would be the return of the deposit that you put up to be in the trade. As you can see - it is very important to make sure that you have plenty of balance left after entering a trade to ride that trade negative for a while if necessary before your trade becomes profitable. For more information about how to trade safe, check out my website: www.MindyYost.com Hope this information helped answer your question.
H dutr (5 months ago)
Thank you for your help.
phi vortex (5 months ago)
Hi Mindy, Just found your channel. Will visit your site. Thanks for the above! I am just battling to understand why the margin decreases as the leverage increases. Using a $1000 account as an example and ignoring lot size for explanation purposes: 50X = $50 000 and 100X = $100 000; if the 100X trade went against you by just 1% you would have a draw-down and zero balance - whereas the 50X trade at 1% draw-down would leave you with $500. Is there some standard formula? If so, is it specifically designed to entice one into using higher leverage? Many thanks, Mark, UK
Derron Williams (6 months ago)
Hello. I am opening a live account on fx pro soon, what should my leverage be on a $300 starting trading account?
Mindy Yost (6 months ago)
To make the most use of a small starting fund, you want to go with the highest leverage available. In larger accounts, FinPro offers 400:1 leverage and that is what I would suggest you ask for, but I am not sure if that leverage is available on the micro account. When you make your application, the highest leverage you will see on the application is 200:1, but as soon as the account is opened and funded you will be able to change the leverage to 400:1 (if they allow that on the micro accounts). When you make your application, drop my name as referring you to them - as they like to know that I am actively promoting them. I have been trading with FinPro for several years now and have found them to be great in all respects - maybe the best broker I have ever had. As a side note: I will be doing 7 FREE hedging workshops on Friday, November 23rd (Black Friday) - one session every 4 hours - so go to my website: www.MindyYost.com and you will find the link and schedule of session times. Everyone is welcome - no cost - no pre-registration. Come and learn how to implement hedging to your forex strategy and watch your profits grow!
Baran Malgir (8 months ago)
for gbp/nzd example margin requirement should have been 905.80 dolars not 559.00
TrealKb (20 days ago)
Baran Malgir that’s what I thought, I was getting so confused
Butana Moaka (10 months ago)
Thanks for this video you are the best I will visit your website Now I will check your Videos on your Channel
Lowdavidfilms (10 months ago)
I had to cut the video short busy at work can someone tell me the risks of leverage
Ricardo Zapata (9 months ago)
Lowdavidfilms And thats why you will fail at trading. You need to spend time to do your homework and research by yourself. Not other people telling how and when etc. 🤦🏻‍♂️🖕🤣🖕
Mindy Yost (10 months ago)
Leverage refers to the amount of money you need to "put up" to be in your trade. If you have a "low" leverage, you put up MORE money for the trade than if you have a "high" leverage. Trading with a higher leverage means that you will have move of your account balance available to manage you trades with, but if you trade foolishly and hit a margin call, you will lose more of your overall account balance than you would trading with a lower leverage.
Nate Price (11 months ago)
I found this very helpful may God bless you.
Mindy Yost (11 months ago)
Thank you. I post new videos almost every day on my website. www.MindyYost.com so check it out for even more helpful information about forex trading. I will be teaching Forex Summer School beginning June 10th and that will focus on getting in profitable trades EVERY trading day.
Bestnet Sellers (1 year ago)
Super great video !!! Very helpful
BRIAN GATIU (1 year ago)
you are the best.
Mindy Yost (1 year ago)
Thank you, Brian. I appreciate your comment! Cheers, Mindy
Mindy Yost (1 year ago)
I have uploaded a revised version of this video with much better sound volume. Here is the link to the new video, https://youtu.be/iVpwm-ExKD0 I think you will pleased with the new video. Cheers, Mindy
Mindy Yost (1 year ago)
Several people have commented in just the past few weeks that the volume is really low and - you're right - it is very low. It really was not always like this. I am not sure what is happening, but it seems to be turning itself down little by little every day. But - I am in the process of doing a re-make of this video which should be finished in a few days - so check back next week and the new one should be uploaded. Thanks for letting me know about the volume. Cheers, Mindy
hasan subzwari (1 year ago)
Whole thing is perfect. but i think you need to raise your video Volume .
Rate Me (5 months ago)
Juhász Fujisawa scam
Juhász Fujisawa (8 months ago)
I make a living trading stocks and Forex and also teaching those around me how to do same. One mistake I see people make is getting caught up in the hype surrounding these so calls experts . From my 5 years as a trader I can only recommend *Dmitry Vladislav* 's *Blended Model Strategy* as the most profitable out there. A strategy that has made me well over 700K yearly is a good one. search for this strategy online guys and get more informed how leverage works
DANIEL PROMISE (11 months ago)
yeah that's good but the audio is very poor
Theo Paine (1 year ago)
Excellent video on proper risk management. Simple & to the point. If more folk were to abide by these simple rules, there would be less casualties amongst aspiring forex traders.
Juhász Fujisawa (8 months ago)
I make a living trading stocks and Forex and also teaching those around me how to do same. One mistake I see people make is getting caught up in the hype surrounding these so calls experts . From my 5 years as a trader I can only recommend *Dmitry Vladislav* 's *Blended Model Strategy* as the most profitable out there. A strategy that has made me well over 700K yearly is a good one. search for this strategy online guys and get more informed how leverage works
Mindy Yost (1 year ago)
Thank you Theo for your wonderful comment. It is so nice to know that I can help people understand the forex market. Please spread the word thru your forex friends to check out my website: www.MindyYost.com as I will be posting more videos soon and with more regularity, but would also like to get my subscriber base up to 1,000 in the coming year.

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