Trade Gold Trading

Leverage Definition

What is Leverage in XAU/USD Trading?

The meaning of leverage is having the ability to control a large amount of money using very little of your own funds and borrowing the rest - this is what makes the market to attract many traders.

What does a leverage option of 1 100 mean?

When Gold using leverage it means that as a trader you can open trade position positions which are bigger than if you were using only the amount of money on your trading account without leverage.

With leverage you can use your money which is in your trading account to borrow from your broker through what is known as leverage. For example illustration, if you have a account with $100 dollars - you can use your $100 and borrow using the leverage option of 1:100, which means that you will borrow $100 from your broker for each $1 dollars in your account and after leverage you'll have $100*(1:100 Leverage) = $10,000.

xauusd trading leverage is represented in the form of ratio:

For example trading leverage option 1:100 or 1:50 or 1:10

Sometimes the leverage ratio option can also be written as 100:1 or 50:1 or 10:1 depending on your online trading broker.

This ratio just explains the amount of leverage whether it's written 100:1 or 1:100.

Leverage of 1:100 means you've borrowed using 1:100 & increased your trading capital 100 times.

Leverage of 1:50 means you have borrowed using 1:50 and increased your trading capital 50 times.

Leverage of 1:10 means you've borrowed using 1:10 and increased your trading capital 10 times.

Example:

We shall us this illustrations to explain what trading leverage is? If your broker provides you leverage of 100:1 (this the best option to choose as the maximum leverage for any account)

This means you borrow $100 dollars for each one dollar you have on your xauusd account.

In other terms your broker provides you $100 dollars for each one dollar on your trading account. This is what's referred to as leverage.

This means if you open a trading account with $1,000 and your leverage option is 100:1, then you get $100 for every $1 you which you have on your account, the total amount that you will control is:

If for 1 dollar the broker gives you 100

Then if you have 1,000 you will get a total of:

$1,000 * 100 = $100,000

Now you control 100,000 dollars of capital on your account that you can open trade transactions with

Most new traders ask what leverage is best for $100, or $500, or $1,000 dollars trading account? - Best option to choose when opening a live account is 100:1 and not 400:1.

XAU/USD with Leverage

The more trading leverage you use greater the profits or losses

The less leverage you use the lesser the profits/losses

It is hence better to use less trading leverage so as to cap the risks involved. The greater the leverage ratio used the greater the risks. This is one of leverage guidelines not to use more than 5:1 xauusd gold trading leverage.

In money management leverage guidelines: It is advisable to keep below 10:1 leverage which's still high, most professional money managers use 2:1 ratio in their account.

To Learn More about Leverage & Margin - Learn the Lessons Below:

Leverage and Margin Illustrated

Get More Tutorials & Topics:

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Forex Traders Seminar

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