Difference: Maximum Leverage Set by Broker & Used Leverage

Difference Between Maximum Leverage Set by the Broker and Used Leverage

If the set leverage option is 100:1, what this means is that you can borrow up to $100 for every one dollar you which have in your account, but you don't have to borrow all the $100 for every one dollar that you have, you can choose that you want to borrow 50:1 or 20:1. In this instance though leverage option is set at 100:1 your used trading leverage will be the 50:1 or 20:1 which you have borrowed to make a trade position.

Example:

You have $1000 dollars (Equity)

Set 100:1

Leverage Used = Amount used /Equity

If you buy trading lots that are equal to $100,000 you will have used

= 100,000/1000

= 100:1

If you buy trading lots that are equivalent to $50,000 you will have used

= 50,000/1000

= 50:1

If you buy trading lots which are equivalent to $20,000 dollars you'll have used

= 20,000/1000

= 20:1

If you buy trading lots that are equivalent to $10,000 you will have used

= 10,000/1000

= 10:1

In these 3 cases you can see that even though the set is 100:1

The used leverage option is 100:1, 50:1, 20:1 & 10:1 depending on the size of lots transacted.

So Why not Just Select 10:1 option as the Maximum Leverage? Because to keep within proper risk management rules it's even advised that traders use less than this?

This question might seem straight forward but it is not, because when you trade you use borrowed equity known as Leverage. When you borrow capital from anybody or a bank you must keep a security or collateral to get a loan, even if the security is depending on monthly deductions from your own salary, the same thing with Gold Trading.

In gold trading the security is known as margin. This is the capital that you deposit with your broker.

This is calculated in real-time as you trade. To keep your borrowed money you must sustain what is known as the required capital (your deposit).

Now if Your Leverage is 100:1

When trading, if you have $1,000 & use leverage option 100:1 and buy one standard lot for $100,000 dollars then your margin on this trade position is the $1000 dollars in your trading account, this is the money that you'll lose if your open trade transaction moves against you, the other amount $99,000 that is borrowed, they'll close out the open gold trades automatically once your $1,000 has been taken out by the market.

But this is if your online broker has set 0 percent% Margin Requirements before stopping out your xauusd trade transactions automatically.

For 20% requisite before stopping out your xauusd positions automatically, then your trades will be stopped out once your account balance gets to $200

For 50% requisite of this level before stopping out your xauusd positions automatically, then your trades will be closed out once your account balance gets to $500

If they set 100 percent prerequisite of this level before closing out your open transactions automatically, then your trade will be closed out once your trading account balance reaches $1,000: Explanation the trade position will close-out as soon as you open it because even if you pay 1 pips spread your account balance will drop to $990 dollars and the needed percent% is 100 percentage% i.e. $1,000, henceforth your open trade orders will immediately be stopped out.

Most online brokers don't set 100% requisite, but there are those that do set 100% are not suitable for you at all, select those set 50 percentage% or 20 percent% margin requirements, in fact, those xauusd brokers which set their margin requirement at 20% are some of the best since due to the likely hood they stop out-out your trade transaction is reduced as displayed in the above example.

To know about this level that is calculated by your software automatically - MT4 Platform Software will show this as "Gold Margin Requirement", This will be displayed as a percentage% the higher the percentage% the less ikely your trade positions are to get closed out.

For Example if

Using 100:1

If leverage is 100:1 & you transact 1 Mini Lot, equals to $10,000 dollars

$10,000 (mini lot) divide by 100:1, your used trading capital is $100 dollars

Calculation:

= Capital Used * Percent(100)

= $1,000/$100 * Percentage

XAUUSD Margin Requirements = 1000%

Trader has 980 percent% above requirement amount

Using 10:1

If leverage is 10:1 and you transact 1 Mini Lot, equals to $10,000 dollars

$10,000 dollars(mini lot) divide by 10:1, your used equity is $1000

Calculation:

= Capital Used * Percentage

= $1,000/$1000 * Percent(100)

Gold Margin Requirement = 100%

Investor has 80% above requirement amount

Because when one has a higher leverage means that they have more percent above what is required (A.K.A. Known As More "Free Gold Margin") their open gold positions are less likely to get closed out. This is the reason why traders will select the option 100:1 for their account but according to their risk management rules, they won't trade above 5:1 leverage option.

These Levels are Displayed on the Trading Software Screenshot Below as an Example:

Maximum Leverage Set for Account

MetaTrader 4 Software

Study More Tutorials and Topics:

Trade Gold Trading

Difference Between Maximum Leverage Set by the Broker and Used Leverage

Now if Your Leverage is 100:1