Leverage and Lots

LEVERAGE
Leverage is the ratio of loan amount per deposit issued to a trader by a broker for a trader's account. The higher the leverage, the higher the profit or loss that be incured.

 Brokers leverage (Loan) to a trader can be from 50 to 2000.

For example if a brokers leverage (Loan) for your account is 500, it simply means that If you deposit $1000 for Forex trade;

Your money will turnout to become $500,000 (500 x $1000) Which you can only use for trading purpose to gather large profit to your accounts or as well make large loss if the trade goes against you.

LOT
Lot is the degree of the leverage a trader, wishes to apply for a particular trade. In as much as you can use the entire leverage (Loan) giving to you by your broker, you can decide to partition the leverage according to the level of your risk tolerance.

Using a large number of lots in trading is one of the major reason, traders lose their capital when trading Forex.

You must acertain the Lot of your Lot Size you are able to trade and make profit as well as being able to manage your trade if the trade goes against you.

In the FOREX Trading Business: 
1 STANDARD LOT SIZE = $100,000
1 MINI STANDARD LOT = $  10,000
1 MICRO STANDARD LOT =$  1000

HOW TO APPLY:
1 STANDARD LOT SIZE = $100,000
If you are trading from 100,000 to 199,999, use 1 lot to trade.

1 MINI STANDARD LOT = $10,000
If you are trading from $10,000 to $19,999, use 0.1 lot to trade.

1 MICRO STANDARD LOT =$  1000
If you are trading from $1000 to $1999, use 0.01 lot to trade.

NB. For a trader to know his lot size or volume, the trader must always multiply his trading capital by leverage (loan) from his broker.

Next Topic: Market Orders

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