– A lot of people will
get really interested in forex trading when they
hear the word, "leverage". Does that mean I'll be able
to make more money? Kind of. But there's a but. (whiplash sound) What's up guys? Welcome
back to this video. Today I thought I would look at leverage. It's a question I get
very, very, very often and I don't think I've made
a video on that topic before. I think I've mentioned
it a couple of times, but I want to take a
sensible approach to leverage and something you won't
see on YouTube, I think. In the past I've been
saying to people that leverage really didn't matter, but I was a little bit wrong with that and I want to share exactly
how you should figure out what leverage to use based
on the math behind it.
Now, the goal of leverage
is not to make more money, it's not dangerous, it's not
gonna make you lose more money. It's just gonna be there
as a tool that you can use to kind of manage your risk effectively and still be able to
trade and get some reward. For this video, I'll take
a very simple example with an account of a say $1,000. I just picked this amount
coz it's easy to calculate and we'll just go with that. So, if your account was
using 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 be
able to buy approximately, 1,000 unit of a currency, let's say that, one unit Casa dollar, which
could 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 really
important to define first, is gonna be your risk.
The goal of leverage
is only to allow you to use your full risk that you're
allowed to take in a trade and that should be the basic objective. So let's get into your
risk portrayed is 1% and on $1,000 that would be $10. You'll basically only be allowed to have a surplus of 100 pips, if
you were to buy 1,000 units to reach your $10 stop-loss
and that's not a lot and you already are all
in with all your money, which means you cannot trade more.
And that's the situation
you don't wanna be in because there's gonna be
opportunities in the market that might or might not
happen 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 leverage
comes really into play and where you can use it to
benefit you, not to hurt you, but use it kind of the smart way. And that's what I wanna teach
you guys to do right now. If you go on Oanda, which
is the broker I use, they have a kind of nice calculator, that shows you what you
have 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 account
and 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 to
take 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 be
able 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 point
where 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 you
use, just understand that you need to be able to take
the trades you take on average.
And try to go back in time, figure out how many trades have I
taken at the same time on different currency pairs
and if the answer is five ensure that you're leverage
allows you to take five trades, if the answer is 10, ensure
that 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, which
is what I showed you guys in the example. It's fine, I won't ever use 30 to one because I wouldn't be able
to 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 some
value with that question and hopefully the issue is clear. But if you have any
questions, comment below. Let me know your thoughts as always. Like the video if you liked it today and subscribe to see
more videos like this. There's one every single day, on average.
(laughs) But I'll see you guys tomorrow. Ciao..