Using Leverage in the Forex Market

Leverage is very common in the FX market, and this is why it is so popular among traders; large returns can be made from a small investment. FX brokers will commonly give 100:1 and up to 400:1 leverage. This means that for every dollar you receive a minimum of $100 in capital you can trade with. Lets assume that you choose to have 100:1 leverage in your account, and you deposit $1000. You will have $100,000 in total buying power you can make money off of. To open a position worth $10,000 will mean that you put $100 in margin. This is your good faith assurance of the trade, and as long as you maintain a total of $100 in your account that trade can stay open.

A $10,000 dollar trade is called a mini lot and each pip movement will result in a profit or loss of $1.00 approximately (will be based on what currency pair you are trading). A $1,000 dollar trade is called a super-min lot and each pip movement will reflect a gain or loss of $0.10. A standard lot is $100,000 worth of currency and thus each pip movement is worth $10.00. Currency pairs differ in how much they move on average each day. Some currency pairs frequently see moves of 400+ pips a day where others will almost always be under 100 pip movements.