What is leverage?
Leverage is the use of borrowed money to invest/ trade in financial markets. But it is not a debt that goes into your trading account.
You will only get the ability to buy and sell large amounts but use low funds depending on how much leverage you use.
To enter a trade and open 1.00 lots, the required capital is $100,000. If you do not have $100,000 capital, you cannot open a 1.00 lot.
Let's look at the example below if you are trading without leverage.
| Equity | Max lot you can use | Profit per pip |
|---|---|---|
| $100,000 | 1.0 | $10 per pip |
| $10,000 | 0.1 | $1 per pip |
| $1,000 | 0.01 | $0.10 per pip |
Based on the table above, without leverage - you need a minimum capital of $1,000 to open a 0.01 lot.
| Equity | Max lot you can use | Profit per pip |
|---|---|---|
| $100,000 | 10.0 | $100 per pip |
| $10,000 | 1.0 | $10 per pip |
| $1,000 | 0.1 | 1 per pip |
| $100 | 0.01 | $0.10 per pip |
Based on the table above, if you use a leverage of 1:10, you need a minimum capital of $100 to open a 0.01 lot,
| Equity | Max lot you can use | Profit per pip |
|---|---|---|
| $100,000 | 100.0 | $1,000 per pip |
| $10,000 | 10.0 | $100 per pip |
| $1,000 | 1.0 | $10 per pip |
| $100 | 0.1 | $1 per pip |
| $10 | 0.01 | $0.10 per pip |
Based on the table above, if you use a leverage of 1:100, you need a minimum capital of $10 to open a 0.01 lot.
The greater the leverage that you use, the larger the lot that can be used. And the bigger the lot you use, the bigger the risk. So, choose the leverage that suits your capital
Next Topic: What is Pip and Pipette?