– A lot of people willget really interested in forex trading when theyhear the word, “leverage”.
Does that mean I'll be ableto make more money? Kind of.
But there's a but.
(whiplash sound) What's up guys? Welcomeback to this video.
Today I thought I would look at leverage.
It's a question I getvery, very, very often and I don't think I've madea video on that topic before.
I think I've mentionedit a couple of times, but I want to take asensible approach to leverage and something you won'tsee on YouTube, I think.
In the past I've beensaying to people that leverage really didn't matter, but I was a little bit wrong with that and I want to share exactlyhow you should figure out what leverage to use basedon the math behind it.
Now, the goal of leverageis not to make more money, it's not dangerous, it's notgonna make you lose more money.
It's just gonna be thereas a tool that you can use to kind of manage your risk effectively and still be able totrade and get some reward.
For this video, I'll takea very simple example with an account of a say $1, 000.
I just picked this amountcoz it's easy to calculate and we'll just go with that.
So, if your account wasusing a one to one leverage, which most people won't ever use in Forex, and I'm not using that at all, but let's just say that would be the case.
With $1, 000 you'll beable to buy approximately, 1, 000 unit of a currency, let's say that, one unit Casa dollar, whichcould be a case on some pairs.
Now 1, 000 units isn't that much, right? It's something that most people would not like to trade necessarily.
But what's reallyimportant to define first, is gonna be your risk.
The goal of leverageis only to allow you to use your full risk that you'reallowed to take in a trade and that should be the basic objective.
So let's get into yourrisk portrayed is 1% and on $1, 000 that would be $10.
You'll basically only be allowed to have a surplus of 100 pips, ifyou were to buy 1, 000 units to reach your $10 stop-lossand that's not a lot and you already are allin with all your money, which means you cannot trade more.
And that's the situationyou don't wanna be in because there's gonna beopportunities in the market that might or might nothappen at the same time and you need to be able to take multiple trades when they happen, not to limit yourself to only one.
So that's where leveragecomes really into play and where you can use it tobenefit you, not to hurt you, but use it kind of the smart way.
And that's what I wanna teachyou guys to do right now.
If you go on Oanda, whichis the broker I use, they have a kind of nice calculator, that shows you what youhave to put in as a margin, so what you need in your account for whatever leverage you wanna use.
So let's say, you were to use 30 to one as leverage in your accountand you buy your USD, let's say you buy 1, 000 unit, like in our example before.
You would only need basically$40 in your account, which is allowing you totake more trades, right? And your risk is not bigger, your risk is the same because you control it with your surplus.
You take profits the same, everything is the same except that you will beable to take more trades.
So with that in mind, it's kind of logical to take more leverage, but you must be careful not to get to a pointwhere you are too high, where if you make a mistake, you could be screwed.
And that's basically the basic premise.
If you control your risk the same way no matter what leverage youuse, just understand that you need to be able to takethe trades you take on average.
And try to go back in time, figure out how many trades have Itaken at the same time on different currency pairsand if the answer is five ensure that you're leverageallows you to take five trades, if the answer is 10, ensurethat the leverage you have allows you to take 10 trades.
And my leverage in my account, I just looked it up for fun is set 30 to one, whichis what I showed you guys in the example.
It's fine, I won't ever use 30 to one because I wouldn't be ableto take way too many trade to reach the full amount of my account.
What is there, just so that it's easier and I don't have to worry about it.
So hope this makes sense, I hope you guys get somevalue with that question and hopefully the issue is clear.
But if you have anyquestions, comment below.
Let me know your thoughts as always.
Like the video if you liked it today and subscribe to seemore videos like this.
There's one every single day, on average.
(laughs) But I'll see you guys tomorrow.