Effects of Leverage Calculations
Leverage calculations allow you to see basically how much equity is in your account so you will not be subject to a margin call. Most forex brokers allow a very high leverage ratio, or, to put it differently, have very low margin requirements. The margin in a forex account is a performance bond, the amount of equity needed to ensure that you can cover your losses.
If you have 100:1 leverage, then the margin in your account must be at least 1% of the contract value. If you have 200:1 leverage, then the margin in your account must be at least 0.5% of the contract value. To calculate margin, you take the price of the currency X the number of units X the margin requirement.
→ EXAMPLE: EUR/USD = 1.35
1.35 x 100,000 x 1% = 1,350 USD that must be used as margin to control the 100,000 units of EUR
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