2. 1:500 leverage is way too much and is not needed, especially if you have 5000 USD to trade with. The point of high leverage is... a) It allows brokerage clients to take more trades, even with a small deposit.
1:500 leverage means Forex traders must have 1/500th of the total deal value as a margin requirement. For example, if the total deal value equals $100,000, Forex traders must have $200 to open and control the deal. Traders can also view it as controlling $500 for every $1 in their account.
Leverage is described as a ratio or multiple.
So, for example, trading using leverage of 30:1 means that for every US$1 of available margin that you have in your account, you can place a trade worth up to US$30.
$10000/400 = $25 margin per lot. $10000/100 = $100 per lot. To find out what your TRUE leverage is, divide the lot value by the dollars in your account. $10000/$500 = 20:1 which is waaay too high. You should strive to keep your true leverage under 5:1 and preferably 3:1.
Many professional traders say that the best leverage for $100 is 1:100. This means that your broker will offer $100 for every $100, meaning you can trade up to $100,000. However, this does not mean that with a 1:100 leverage ratio, you will not be exposed to risk.
The optimal risk of $30 a trade will allow you to trade 0.1 lots with an SL of 300 points. The potential growth will be $90. Depending on the percentage of your account you want to assign for a trade, there may be different combinations and the size of stop-loss in points you need for your trade may differ.
To understand the difference between 1:30 and 1:500 leverage, let's take the example of trading 1 lot of EUR/USD. With 1:30 leverage, a trader would require a margin of $3,333.33 (1/30th of the position size), while with 1:500 leverage, the required margin would be $200 (1/500th of the position size).
For example, a trading account with leverage of 1:30 means that a trader can open a leveraged position 30 times the size of their margin. The knock-on effect of this will be that any profit or losses from such a trade would also be subject to the same multiplication of 30.
If you have $500 in your account, 1:100 is a good leverage ratio. This way you will have $ 50,000 at your disposal. This is enough to start if you trade with the minimum lot and limit yourself to 5 open orders.
A low leverage ratio tells us that a company is financially responsible, relying more on equity than debt for daily business operations. Even if a business has debt, it's not necessarily a bad thing, but a low ratio indicates that they're more likely to repay that debt.
Although you'd only paid £200 to open a position of the same size with a leveraged trade, your profits can appreciate as much as the share price does, but you can only lose as much as you initially paid to open the trade – so £1000 at the most.
So, with a $10 account, you should trade 0.1 micro lots to stay within the 1% risk rule. Based on the above calculation, micro lots (0.01 standard lots) or even nano lots (0.001 standard lots) are the most suitable for a $10 account.
$300 is the minimum amount of money required in a mini lot account, and the best leverage on this account is 1:200. This would mean you will have $60,000 to trade with. Other leverage you can use in forex trading include; 1:50.
The best lot size for $50 is a micro lot.
A micro lot (0.01 lots) is generally suitable, but only just. Risk management becomes your best friend, and you should not risk more than 1-2% of your account on any single trade, which translates to $0.50 to $1.
1:50 Leverage in Day Trading
Most traders consider this ratio risky, yet it's among the most conservative ratios a day trader can use. Utilizing the 1:50 leverage means you can initiate 50 different trades and only end up risking 0.02% with each new trade.
But even if you have a smaller account, you don't need 400:1 or even 100:1 leverage. And if you do, it's a sign that you're probably risking too much per trade. As a new or struggling trader, limiting your leverage to 20:1 or even 10:1 is a wise decision.
Choosing the right leverage
It is important for beginners to start with low leverage as this will help to limit losses and manage risk more effectively. Starting with a low leverage of 1:10 is generally a good rule of thumb. This means that you can manage a position of $10,000 for every $1,000 in your trading account.
What is slippage in trading? Slippage is when the price at which your order is executed does not match the price at which it was requested. This most generally happens in fast moving, highly volatile markets which are susceptible to quick and unexpected turns in a specific trend.
However, the concept of leverage plays a significant role in determining the size of a trader's position. The greater the leverage, the more a trader can afford to buy or sell large lots in quantities that are many times greater than their own funds.
With $1000 on your account, you will be able to trade ($1000 * 0.02) 100,000 * 100 = 0.02 lots. This approach is not the best option for smaller accounts. It may happen that if you have a large loss, the risked percentage will be too small to act as a margin even for the smallest lot size.
How much is too much cash in savings? An amount exceeding $250,000 could be considered too much cash to have in a savings account. That's because $250,000 is the limit for standard deposit insurance coverage per depositor, per FDIC-insured bank, per ownership category.