Look, to invest in forex is often not necessary to enter into transactions with a significant amount of values. There are some forex brokers that give the trader the opportunity to operate microlots. But I do not recommend this type of investment with low resource. You see, a standard lot Eurodollar cost $ 100,000. However, many individual investors do not have this amount. Hence arose a tool to make life easier for those who want to invest in forex: leverage.

Leverage

With this “facility”, the trader can trade the forex market using, say, a value of $ 10,000, however, operating in reality the lot Eurodollar in its actual amount, namely $ 100,000. This means that the trader used in operating a 1:10 leverage. That is, it invested an amount 10 times greater than yours. What happened here is that the trader negotiated the whole lot.

However, there is the possibility of the investor to use not the whole lot of EUR / USD, but a mini-lot. What happens from here is that citizens invest in their real amount, without the use of alavancagem.Ora if he has $ 10,000 and is operating with a minilote (0.1 x $ 100,000) then we have nothing to talk about leverage.

We will continue talking about it for you to understand better. Suppose there is another Trader wanting to invest in forex using an amount of $ 1,000. This “retail trader” wants to operate a whole lot of EUR / USD ($ 100,000). The question is: what leverage it uses?

But if he wants to operate an amount 100 times greater than yours, then use a leverage of 1: 100, simple. But if he wants to operate a minilote the EUR / USD? Well, then you use a 1:10 leverage since it has $ 1,000 account and will handle the value of 10,000 dollars (0.1 x 100,000) corresponding to a 1:10 leverage. I hope you are understanding.

We need to leverage?

Now, it is possible for an operator to use high leverage to invest in the forex market? The answer to this question will depend on the leverage that the investor will have at his side. Because the higher the leverage, the greater the margin requirement for the broker. Whereas recommend small percentages risky for operation at around 2%, then the investor invests $ 1,000, and want to put a stop loss up to a maximum of 2% of its capital, so operation should risk up to the amount of 20 dollars.

We will continue the reasoning, assuming that Trader used the Eurodollar for its operation, and taking into account that each PIP a lot of Eurodollar trading in the forex market is equivalent to the amount of $ 10, so if the market moves against Trader value 2 pips only, our friend will be “estopado” losing 2% of its capital investment. But this is nonsense, just 2 PIPS!

It is good to point out that we must also consider the costs of commission rates of brokers and the spread (difference between bid and ask prices). Therefore, that value $ 20 will greatly decrease because of money management. So without a doubt, if the Trader operates the amount of a lot of the Eurodollar ($ 100,000), only carrying the amount of $ 1,000, so it’s not feasible to use a leverage of 1: 100.

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