I am fairly new to this so please don't be annoyed if I sound silly . The subject is forex .
So I've done research over the internet and you hear leverage this and that, leverage is dangerous ,take care , but leverage if used properly can give you some amazing returns but you need to gain a lot of experience ,know what you are doing and so on.
But from what I understand so far from my own experience on the demo account is that we are already using leverage in order to make any money.So if 1 mini lot is 10 000 dollars worth of currency to enter a position with 1mini lot or 0.1 I would need 10 000 dollars (in broad terms). So at the moment i sold 0.3 on the euro/usd ,my margin is 360.31 , I am 11 pips in profit and I am making 33$ so far.
So basically I entered a position of 0.3 which would be 30k but I only paid 360 to the broker to be able to enter. So with no leverage if I wanted to enter a position of 0.3 I would need to have 30k in cash in my account .
Where am I so far ?
In my own simple terms, leverage is the one determines how big or small the margin needed in a particular trade, the higher the leverage settings the smaller margin it requires in a particular trade, this is the dangerous part of using high leverage settings because traders will be tempted to trade using bigger lot sizes because their leverage settings allow it even if they only have a smaller capital, now there are two sides in it, either you win big of loss big but most of the time if not all the time traders will always end up broke when they use this approach.
[...] Where am I so far ?
The example which is always used of leverage is a house purchase. For example: you buy a house for $100,000. You put up $10,000 of your own money, and a bank lends you the remaining $90,000. If the value of the house increases by 10%, to $110,000, then you have doubled your investment: you repay the bank their $90,000, and you get back $20,000.
But, equally, if the value of the house falls by 10%, your equity is wiped out. So, yes, leverage is dangerous.
As whroeder1 says, you don't "pay 360 to the broker". In effect, it's a sort of refundable deposit.
The bottom line that one needs to use leverage in trading forex to make any money. If I had 2 million dollars in cash in my account would be a different story as I would be able to trade without leverage and make money. But if I have a 1k account and I risk 3% on each trade that would be 30$/trade, well for 30$ I would be able to buy a very very very very very small lot size that would probably take years if it goes my way to make any profits.
Am I right so far ?
But if I have a 1k account and I risk 3% on each trade that would be 30$/trade
Yes, that is right . It depends a lot on how tight is the stop loss.
Thx for the replies and your insights .
Ignored what ?