Margin and Leverage

Forex tutorial

The term leverage (leverage factor, usually in a ratio of 1:50, 1:100, 1:250, or 1:500) in the forex margin trading means that if you want to trade for $ 10,000, you do not have to provide $ 10,000 but sufficient, providing the margin $ 100 ( leverage 1:100) as a guarantee fund to your broker.
So the margin can be interpreted as collateral held by the broker when you make a trade. Margin would soon be returned to your account after you close / liquid position you open.
Suppose you have $ 1,000 cash at the broker who has the leverage to 1:100. This means you can trade with the amount of up to approximately $ 100,000 (or nearly 100x fold your capital). This also means that to use a $ 100,000 contract size you need a 1% margin of $ 1000.
Another example: You have a capital of $ 500 and your broker has the leverage 1:100, then if you want to buy using 1 mini lot (10,000), which detained the margin was 1% of the total contract sizenya (10,000) ie (1% x 10,000) or using a margin of $ 100.
This means that your capital will be retained temporarily and used as collateral / margin by the brokers is $ 100, the remaining $ 400 is used to hold your loss. And if one day you have to liquidate these positions, the margin is $ 100 earlier will be returned to you.
The advantage of the leverage is with a smaller capital you can trade with a total contract size / lot the same as if you do not use leverage.
Or it can be said, with equal capital, you can use the contract size is greater than not using the leverage. So with the same capital, you have the opportunity to increase profit per pip is greater.
With or Without Leverage Leverage?
Leverage Margin Margin Requirements Contract Size Used For Profit 1:1 (without leverage) 100% $ $ 1,000 $ 1,000 0.1/pip 1:100 1% $ $ 10 $ 1,000 0.1/pip

Leverage Big or Small?
Leverage Margin Margin Requirements Contract Size Used For Profit

LeverageMargin RequirementMargin UsedContract SizeProfit
1:1001 %$1,000$100,000$10/pip
1:2000.5 %$1,000$200,000$20/pip
1:5000.2 %$1,000$500,000$50/pip



How Margin Calculation
There are 3 types of Currency Pair (Pair):

   1. Direct Rates
      Is a pair with USD as the counter currency (USD is situated in the rear), for example: GBP / USD, EUR / USD, AUD / USD, and NZD / USD
   2. Indirect Rates
      Is a pair with USD as the base currency (USD is situated in front), example: USD / JPY, USD / CHF, and USD / CAD
   3. Cross Rates
      Currency Pairs that do not contain the USD, for example: GBP / JPY, EUR / JPY, AUD / JPY, EUR / GBP, and GBP / CHF
How to Direct Margin Calculation Rates (GBP / USD, EUR / USD, AUD / USD, and NZD / USD):
Margin Percentage x Contract Size x Lot x Price Now = Margin
Example:

   1. Sell 3 mini lots GBP / USD at 2.0000 Bid price (Remember to use the bid open-Sell!)
      0:01 x 10,000 x 3 x 2.0000 = $ 600 (Leverage 1:100)
      0002 x 10,000 x 3 x 2.0000 = $ 120 (Leverage 1:500) -> Needs a margin less than 1:100!
How Margin Calculation of Indirect Rates (USD / JPY, USD / CHF, and USD / CAD):
Margin Percentage x Contract Size x Lot = Margin
Example:

   1. Buy 2 mini lots of USD / JPY at 110.00 Ask Price (Remember to use the ask price of open Buy!)
      0:01 x 10,000 x 2 = $ 200 (Leverage 1:100)
      0002 x 10,000 x 2 = $ 40 (Leverage 1:500) -> Needs a margin less than 1:100!
How Margin Calculation Cross Rates (GBP / JPY, EUR / JPY, AUD / JPY, EUR / GBP, and GBP / CHF):
Margin Percentage x Contract Size x Price x Lot Central (*) Now = Margin
Middle Price (*) = (Price Bid Price + Ask) / 2
(Do not forget the Base Currency is the currency which is located in front of base pairs. For example, the pair EUR / GBP -> EUR is the BASE currency, GBP is a QUOTE Currency)
Example:

   1. Buy 1 mini lot EUR / GBP at 0.8020 Ask Price (Remember to use the ask price of open Buy!)
      Price Bid / Ask EUR / USD 1.5800/02 (because the Base Currency is the EUR, the price used is the price of EUR / USD)

      The price was EUR / USD = (1.5800 + 1.5802) / 2 = 1.5801

      0:01 x 10,000 x 1 x 1.5801 = $ 158.01 (Leverage 1:100)
      0002 x 10,000 x 1 x 1.5801 = $ 31.60 (Leverage 1:500) -> Needs a margin less than 1:100!
From the example above shows that by using greater leverage, margin / capital needed for collateral is less

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