Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

ereanoraella

What is Leverage?

Recommended Posts

Leverage is amount of money added proportionally to your deposit (50, 100, 500) when you open an order. While your order is active you can't lost more than your trading margin. When you close your order leverage money return to liquidity provider. For example I trade 1:500 leverage with Hotforex, which means that for one full trade lot (100K $) I need only 200$ free margin.

Share this post


Link to post
Share on other sites

you can look through all the definitions on the net, but when it comes to trading think of it this way.

If your gross exposure to an instrument or portfolio is more than your cash in an account you are using leverage.

This will then apply to futures - as they are traded on margin.

Options - as they can give you extra convexity

shares - if you are trading on margin

shorts - because technically your losses may be greater than what is in your account.

 

 

fxeconomst is incorrect when he says - "While your order is active you can't lost more than your trading margin"

 

The broker will chase you for any extra losses your account sustains as a result of gaps and stops not being sufficient to cover your margin.

Share this post


Link to post
Share on other sites
you can look through all the definitions on the net, but when it comes to trading think of it this way.

If your gross exposure to an instrument or portfolio is more than your cash in an account you are using leverage.

This will then apply to futures - as they are traded on margin.

Options - as they can give you extra convexity

shares - if you are trading on margin

shorts - because technically your losses may be greater than what is in your account.

 

 

fxeconomst is incorrect when he says - "While your order is active you can't lost more than your trading margin"

 

The broker will chase you for any extra losses your account sustains as a result of gaps and stops not being sufficient to cover your margin.

 

Hi SIUYA,

 

What does the term 'gearing' mean? Is this simply the amount of leverage that is used?

 

Kind regards,

 

BlueHorseshoe

Share this post


Link to post
Share on other sites
Hi SIUYA,

 

What does the term 'gearing' mean? Is this simply the amount of leverage that is used?

 

Kind regards,

 

BlueHorseshoe

 

I think it is pretty much the same definition - interchangeable, but while levergae is expressed as a % gearing might be expressed as a ratio.

I also thought that gearing was more the coloquial expression - that family is geared to the hilt, v the more formal business definition - that firm has a leverage ratio of 300% on its assets.

It seems only a few places use this expression but it seems appropriate given the use of gears to increase/decrease speeds!

 

Usually if say you have 4: 1 (or 400%) leverage, it means you have gearing of 4:1.

 

 

........side bar deviation

 

Its an interesting issue as there are lots of definitions around, and I have seen some argue that if say for every $1 in an account, $1 is borrowed this is 100% geared.....which is why one needs to be clear about how they define many things, and exactly what it is they are getting. Which is why I pretty much look at things from an 'exposure' point of view.

 

an example....

when the marketing of 130/30 funds are bandied about then one might think this means it has greater than 100% leverage. However most often the gearing might only be 30%-60%, and some would argue that it is Net Exposure neutral (hence the introduction of gross and net exposures to often disguise gearing IMHO), as the long 30%, v short 30% offset each other......

In my terminology I would say the fund has the potential to have an additional 30-60% gearing/leverage through its gross exposure, but even though its net exposure is likely to be neutral, you still have gearing/leverage.

All too often leverage is hidden, or implicit in many things and yet we over look it - Taleb talks about this in his recent book and like him or hate him, if you look at the leverage you can get in some things in life particularly the leverage from convexity and optionality it changes how you look at things.

 

As an old market maker we often had a lot of gross exposure, a lot of leverage and were highly geared, but we also had a lot of net neutral exposures with low risk. Think of what it costs to buy calls, sell stocks on margin.....and do this many, many times, with offsets whereby puts are sold, or other offsetting calls are also sold.

 

...i deviated a little from my first answer :)

Share this post


Link to post
Share on other sites

Leverage is the ability of a trader to control a big market with a small investment, and this leverage is given by broker. For instance For example, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1.You can now controlling $100,000 with $1,000.

Share this post


Link to post
Share on other sites
Hi guys,

 

Have a good day. What is correct the meaning - Leverage? Explain me.

 

leverage it's more like a loan from your brokers, makes your deposit would worth higher than initial amount, i used 1:500 on my Armada markets account means, my deposit are worth 500x times, and can made any transaction equal to 500x, have the same potential but also a risk. here's a simple video brief how forex trading works, move to 1:06

explanation.

hope this would help.

Share this post


Link to post
Share on other sites

The power given to traders by brokers to control a bigger amount of money in the forex market; Leverage works like a two edged sword, it can help you make profits quickly and you can loose your account as well from using a large leverage.

Share this post


Link to post
Share on other sites
Leverage can be created through options, futures, margin and other financial instruments. For example, say you have $1,000 to invest.

 

Is this explanation complete? It left me hanging

Share this post


Link to post
Share on other sites

When an investor decides to invest in the Forex market, he or she must first open up a margin account with a broker. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the position the investor is trading.

Share this post


Link to post
Share on other sites
Leverage means the advantageous condition of having a relatively small amount of cost yield a relatively high level of returns.

 

Exactly, go detail in trading, higher leverage allow you to trade higher volume with less fund.

Share this post


Link to post
Share on other sites

Leverage is an investment strategy of using borrowed money — specifically, the use of various financial instruments or borrowed capital — to increase the potential return of an investment.Leverage can also refer to the amount of debt a firm uses to finance assets.

Share this post


Link to post
Share on other sites

Leverage has slightly different meanings in personal finance, investing and business. But in each case, leverage is the use of debt to help achieve a financial or business goal. Leverage is the use of borrowed funds to increase one's trading position beyond what would be available from their cash balance alone. Forex traders often use leverage to profit from relatively small price changes in currency pairs. Leverage, however, can amplify both profits as well as losses.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • Date: 29th March 2024. GBPUSD Analysis: The Pound Trades Higher But For How Long? The global Stocks Markets are closed due to Easter Friday (Good Friday). The NASDAQ continued to follow the sideways trend while other indices again rose. The SNP500 reaches an all-time high, but the NASDAQ remains under pressure from Tesla, Meta and Apple. The Euro continues to trade lower against all major currencies including the US Dollar, Euro and Japanese Yen. The British Pound is the best performing currency during this morning’s Asian session. However, investors are largely fixing their attention on this afternoon’s Core PCE Price Index. GBPUSD – The Pound Trades Higher but For How Long? The GBPUSD is slightly higher than the day’s open and is primary due to the Pound’s strong performance. At the moment, the British Pound is increasing in value against all major currencies. However, the US Dollar Index is also trading 0.10% higher and for this reason there is a slight conflict here. If investors wish to avoid this conflict, the EURUSD is a better option. This is because, the Euro depreciating against the whole currency market avoiding the “tug-of-war” scenario. The GBPUSD is trading slightly lower than the 2-month’s average price and is trading at 49.10 on the RSI. For this reason, the price of the exchange is at a “neutral” level and is signalling neither a buy nor a sell. The day’s price action and future signals are possibly likely to be triggered by this afternoon’s Core PCE Price Index. Analysts expect the Core PCE Price Index to read 0.3% which is slightly lower than the previous month but will result in the annual figure remaining at 2.85%. The PCE rate is different to the inflation rate and the Fed aims for a rate between 1.5% to 2.00%. Therefore, even if the annual rate remains at 2.85%, as analysts expect, it would be too high for the Fed. If the rate increases, even if only slightly, the US Dollar can again renew bullish momentum and the stock market can come under pressure. This includes the SNP500. Investors are focused on the publication of data on the UK’s gross domestic product (GDP) for the last quarter of 2023: the quarterly figures decreased by 0.3%, and 0.2% over the past 12-months. This confirms the state of a shallow recession and the need for stimulation. The data, combined with a cooling labor market and a steady decline in inflation, increase the likelihood that the Bank of England will soon begin interest rate cuts. In the latest meeting the Bank of England representatives did not see any members vote for a hike. USA500 – The SNP500 Rises to New Highs, But Cannot Hold Onto Gains! The price of the SNP500 rises to an all-time high, before correcting 0.33% and ending the day slightly lower than the open price. Nonetheless, the index performs better than the NASDAQ which came under pressure from Tesla, Meta and Apple which hold a higher weight compared to the SNP500. For the SNP500, these 3 stocks hold a weight of 9.25%, whereas the 3 stocks make up 14.63% of the NASDAQ. The SNP500 is also supported by ExxonMobil’s gains due to higher energy prices. The market will remain closed on Friday due to Easter. However, the market will reopen on Monday for the US and investors can expect high volatility. Investors will also need to take into consideration how the PCE Price Index and the changed value of the US Dollar is likely to affect the stock market next week. Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HFM Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Michalis Efthymiou Market Analyst HFMarkets Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • MT4 is good and will be good until their parent company keep updating the software, later mt4 users will have to switch to mt5.
    • $SOUN SoundHound AI stock at 5.91 support area , see https://stockconsultant.com/?SOUN
    • $ELEV Elevation Oncology stock bull flag breakout watch , see https://stockconsultant.com/?ELEV
    • $AVDX AvidXchange stock narrow range breakout watch above 13.32 , see https://stockconsultant.com/?AVDX
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.