Leverage in a Base Currency
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Forex Club Advantages |
- 100:1 for accounts from $10 to $100,000;
- 50:1 for accounts from $100,000 to 200,000;
- 20:1 for accounts over $200,000;
- Minimum trade size is 1,000 which is equivalent to $10 traded with the maximum leverage ($10x100=1,000).
Leverage in a base currency:
- Simpler and more convenient calculation;
- While the cost of pip equals in both examples, margin requirement does not;
- Margin requirement is not influenced by currency fluctuations;
- No need to worry about funding your account in a certain currency with which you plan to trade;
- Actual maximum leverage may be more than 100:1, when a base currency has a greater value than the US dollar.
Leverage in a base currency is Forex Club's unique approach to calculating the leverage (buying power), and consequentially margin requirements (how much you need on your deposit to make a trade). There is some disagreement amongst traders if "leverage in a base currency" approach is advantageous or not in comparison to the traditional way. Let us compare the two and let you be the judge.
Traditional way - leverage in US dollars
The common way to calculate leverage is to
calculate in some currency, usually US dollar. Most brokers offer
leverage of 100:1 in US dollars. Maximum trade size is then
calculated as amount in USD x 100. Suppose you decide to purchase
100,000 GBP/USD ($10 per pip). What will be the necessary margin
requirement for this trade? To figure this out we need to take
current quote for GBP/USD (lets say 2.0285) and do the
following:
is the amount you need to have on your deposit to purchase 100,000 GBP/USD, when cost of a pip is $10 and when current GBP/USD=2.0285
(2.0285 *100,000)/100 = $2028.50
is the amount you need to have on your deposit to purchase 100,000 GBP/USD, when cost of a pip is $10 and when current GBP/USD=2.0285
Forex Club way - Leverage in a base
currency
When you are trading with leverage in a base
currency, remember that when leveraged, each dollar on your deposit
= 100 units of any other currency. If you decide to purchase
100,000 GBP/USD at a rate of 2.0285, you need to have $1,000 on
your deposit. By the same token, with $5,000 on your deposit you
can purchase 500,000 GBP/USD or 500,000 EUR/USD, or 250,000 GBP/USD
and 250,000EUR/USD simultaneously. The calculation is as simple
as:
is the amount you need to have on a deposit to
purchase 100,000 GBP/USD, when the cost of a pip is $10 and when
current GBP/USD=2.0285Just divide trade size by 100.
My FXBank
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