Stock Trading Leverage Definition
What's Stocks Trading Leverage in Stocks Trading?
The definition of stock leverage is having the ability to control a big amount of money using very little of your own money & borrowing the rest - this is what makes the stocks market to attract many investors.
What does a Stocks trading leverage of 1 100 mean?
When Stock Trading using stock trading leverage it means that as a trader you can open trade positions which are larger than if you were using only the amount of money in your stock trading account without stocks trading leverage.
With stock leverage you can use your money that is in your stocks trading account to borrow from your stock broker through what's referred to as stocks trading leverage. For example if you have a stock trading account with $100 dollars - you can use your $100 & borrow using the stock leverage of 1:100, which means that you'll borrow $100 from your stock broker for every $1 in your stocks trading account & after stock leverage you will have $100*(1:100 Stock Trading Leverage) = $10,000.
stock leverage is written in the form of a ratio:
For example stock leverage 1:100 or 1:50 or 1:10
Sometimes the stock leverage can also be written as 100:1 or 50:1 or 10:1 depending on your stocks trading broker.
This ratio just explains the amount of stock leverage whether it is written 100:1 or 1:100.
Stock Leverage of 1:100 means you've borrowed using 1:100 and increased your trading capital 100 times.
Stock Trading Leverage of 1:50 means you've borrowed using 1:50 and increased your trading capital 50 times.
Stock Trading Leverage of 1:10 means you have borrowed using 1:10 & increased your trading capital 10 times.
Example:
We shall us this stocks trading example to explain what stock leverage is? If your stock broker gives you stock leverage of 100:1 (this is best option to select as the maximum stock leverage for any stock trading account)
This means you borrow 100 dollars for every dollar you've in your stocks trading account.
To put in another way your stock broker gives you 100 dollars for every 1 dollar in your stocks account. This is what is known as stocks trading leverage.
This means if you open a stock trading account with $1,000 & your stocks leverage is 100:1, then you get $100 for every $1 you that you've in your stock account, the total amount which you'll control is:
If for 1 dollar the broker will give you 100
Then if you have 1,000 you will get a total of:
$1,000 * 100 = 100,000 dollars
Now you control 100,000 dollars of capital in your stocks account that you can open trades with
Most new stock traders ask what stock leverage is best for 100 dollars, or 500 dollars, or 1,000 dollars stock trading account? - The best option to choose when opening a live stocks account is always 100:1 & not 400:1.
Stock Trading with Stocks Trading Leverage
The more stock leverage that you use greater the profits or losses
The less stock leverage you use the lesser the profit or loss
It is therefore better to use less stock leverage so as to minimize risks involved. The higher the stock leverage used the higher the risk. This is one of the stock leverage rules not to trade with more than 5:1 stocks trading leverage.
In stock trading leverage rules: It is always advisable to stay below 10:1 which is still high, most professional money managers use 2:1 in their stock trading account.
To Know More about Stock Leverage and Margin - How Do I Read the Topics Below:
Stock Leverage and Stock Trading Margin Explained
