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Forex Leverage, Margin Requirements & Trade Size 2018

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How to calculate viable trade sizes based on the leverage and margin requirement in different currency pairs.
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Text Comments (4)
Mr. Hang (1 year ago)
Can you give an example on a losing trade with using a leverage 50:1 on a $500 account? I want to better understand the loss possibly all of the money and or sometimes more than i have deposited. Plz, thank you and great video great infos.
Mr. Hang (1 year ago)
Mindy Yost Thank you!
Mindy Yost (1 year ago)
Hi Mr. Hang, If you have a $500. account, and you are using a 50:1 leverage, the problem is that you will not have very much cushion in your account when you make a trade. Cushion is the amount of "usable margin" that you have after the deposit (or margin requirement) has been deducted from your balance when you initiate the trade. Let's say that you go into a 1 MiniLot trade in EUR/USD. The margin requirement for that trade is $247.00 and this amount is immediately deducted from your balance. You will get this deposit back when you close the trade (for either a profit or a loss) but it is money that is not available to you while your trade is active. As you know, every trade you initiate begins in the negative. This is because of the "spread" between the buy and sell prices, and if you enter a buy trade then you have to wait for the sell side of the spread to be above where you entered before your trade is positive, and vice-versa for a sell trade. Your 1 MiniLot trade in EUR/USD has a "pip value" of $1.00. The pips value is the amount of profit you will make - per pip - if the trade moves in your favor. But, likewise, if the trade moves against your trade, you will be losing $1.00 for every pip that your trade goes negative. Because you started with a balance of $500, once the margin requirement has been deducted from your balance, when you first enter the trade, you will only have $253. left in Usable Margin. What this means is that if your trade goes 253 pips negative, your usable margin will go down to ZERO and the broker will close your trade for a $253. LOSS. But - remember, you will have the margin deposit returned to the account so you will now have a new balance of $247,00 and you just LOST about half of your money. That is what happens MOST of the time if stop losses are not added to trades that will cut off the loss at a smaller number. BUT - there can be (and have been) situations in forex where something dramatic happens to make the forex pair move in extreme ways. If one of these situations happens, it is possible that a forex pair could move 300, 400 or more pips in a matter of seconds. If, for example, right after you entered your trade, one of these extreme situations happened, and the EUR/USD pair moved 600 pips down in an instant. What would happen then is that the broker would not have an opportunity to close your trade when you ran out of usable margin, but they would still close your trade at the first available pip. If the first available pip was 600 pips below your original entry, then that would mean that you would get NOTHING back from your margin deposit AND would still owe the broker $100 MORE DOLLARS because your account just had a loss that was $100. MORE than what you had on deposit in the first place. People think that these situation will never happen - but they do - just not very often. When trading forex there is ALWAYS inherent risks that can come from multiple sources, but still, the most prominent risk any trader faces is "Trader Risk" which is the risk the trader creates for themselves by not understanding how to trade in a safe and profitable way. Check out my website: www.MindyYost.com for information about my mentoring programs, workshops and trader education information where you can learn how to give yourself an edge in the forex markets.
Steve Smith (1 year ago)
Clear explanation, thanks.

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