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
Study Guide >> Forex Trading Calculations >> Effects of Leverage Calculations
One Comment
You may want to change this as NFA has changed its rules regarding maximum leverage as of 10-18-2010;
The NFA allowed max leverage on Majors is 50:1 or 2% margin.
A Major currency pair as described by the NFA must be comprised of 2 currencies from the following list: AUD, CAD, CHF, DKK, EUR, GBP, JPY, NOK, NZD, SEK, and USD.
Examples: USD/NOK, EUR/SEK.
All other currency pairs are subject to leverage at 20:1 or a 5% margin.
Examples: USD/MXN, EUR/HUF