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How Much Forex Leverage Should You Use?

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Scale showing forex leverage

Happy Friday!

This week’s question comes from Roberto, who asks:

How much leverage should I use when trading Forex?

The topic of leverage in the Forex market tends to cause a lot of confusion.

What is it and how does it work? Are there advantages or disadvantages?

Unfortunately, the answers to these questions often go unanswered. It’s unfortunate because using excessive leverage is one of the leading killers of Forex accounts.

In fact, I would argue that it belongs at the top of that list.

The good news is that you found this post. By the time you finish today’s lesson, you will know what leverage is and how it works. You’ll also have a firm understanding of how much you should use when trading currencies.

I’m even going to share with you a simple way to make the risk of using too much leverage a non-issue.

Let’s get started.

What is Forex Leverage?

Leverage in the Forex market allows you to control a larger sum than you’ve deposited initially.

Let’s say you put up $1,000. Here in the U.S., the maximum leverage is 50:1. That means you can actually control $50,000 of tradable equity.

Of course, you can’t withdraw that extra $49,000 (wouldn’t that be easy?), but it is there for you to put on positions.

We know that a $100,000 position is equivalent to one standard lot. That means $10,000 is one mini lot and $1,000 is a micro lot.

So if you were to open a $10,000 position (one mini lot) with your $1,000 account, you would be using 10:1 leverage. For every $1 you put up, your broker is allowing you to borrow $10.

Simple enough, right?

I could get into all kinds of scenarios and equations here, but I like to keep things simple. The above example is really all you need to know about leverage in the Forex market.

It also wouldn’t do you much good because as you’re about to see, leverage isn’t much of a factor as long as you manage one very important thing. But more on that later.

For those who want to dig deeper, check out these examples.

Use the Least Amount or None at All

Did you know that you can set the leverage available to you?

Yes, you can actually control how much your Forex broker allows you to borrow. Most brokers start new clients with 100:1 leverage. That’s usually the go-to figure (unless you’re in the U.S. where leverage is capped at 50:1).

However, if you aren’t comfortable with that, you can reduce it to your liking.

Most trading platforms will allow you to do this without having to get your broker’s support. Of course, if you don’t see the option, you can always request that they lower it for you.

Screenshot of available Forex leverage

What’s the best setting, you ask?

There isn’t one. It depends on your circumstances and trading style.

That said, I would opt for the lowest amount possible or none at all. The latter is particularly easy for those with larger accounts.

Chances are you will need to use some leverage. Otherwise, the potential profits may not be worth your time.

You also don’t want to set it so low that you run the risk of a margin call. If you’re unsure about this, be sure to speak with your broker.

And if you’re looking for a Forex broker with excellent customer service and New York close charts, check out Blueberry Markets.

But even if you have a smaller account, you don’t need 400:1 or even 100:1 leverage. And if you do, it’s a sign that you’re probably risking too much per trade.

As a new or struggling trader, limiting your leverage to 20:1 or even 10:1 is a wise decision.

Unless you’re consistently profitable, using high levels of leverage will only help deplete your funds that much faster.

Remember, the name of the game is to survive. You do that by protecting your capital, and limiting the leverage available to you is a good place to start.

Focus on the Amount Risked Instead

Jenga game showing riskNow that you know what leverage is and that it’s a double-edged sword, I’m going to tell you to forget about it because it’s a non-issue.

Allow me to explain…

As long as you manage your risk per trade, the amount of leverage available to you is insignificant. It simply doesn’t matter.

I could offer you a trading account with 10,000:1 leverage so that for every $1,000 you put up, I’m allowing you to control $10 million.

Sounds crazy, right?

But as long as you risk just 1% or 2% of your account balance, it makes no difference.

Two percent of $1,000 is $20 regardless of the leverage available.

The key word there is ‘available’. As long as you don’t abuse it, leverage can’t hurt you. Where traders get into trouble is when they start risking half of their account, or worse, on a single trade.

Using the example above, if your stop loss was 50 pips from your entry, you would use a 4 micro lot position, or $4,000. That means you’re only using 4:1 leverage.

Need a Forex position size calculator? Click Here

I’m still a fan of asking your broker to reduce the leverage available to you. If nothing else, it will deter you from making the mistake of overleveraging your account.

But at the end of the day, the amount of capital you risk per trade is far more important. As long as you keep it reasonable (between 1% and 3% in my opinion), the amount of leverage available to you is mostly irrelevant.

Final Words

Leverage is a double-edged sword. On the one hand, it can help to boost profits, but it can also exacerbate losses.

In my opinion, the best leverage is none at all or the least amount possible. This is particularly true if you’re losing money on a consistent basis. Using excessive leverage when you’re losing will only deplete your trading account that much faster.

Many traders don’t realize that they can control the leverage available to them. If you’re just starting out or still struggling, you may want to set it as low as possible. It will help keep you in the game by preventing you from trading too large.

While the amount of leverage you use is important, it isn’t everything. In fact, it’s somewhat trivial.

As long as you keep your risk to just one to three percent of your account balance, the leverage available to you is rather insignificant. After all, one percent of $1,000 is the same regardless of whether your leverage is 50:1 or 400:1.

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To do that, I need your help.

Here’s what you can do to get involved and have your question answered in next week’s post:

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Leave a Comment:

34 comments
Geoffrey says

Thank you Justin. This article on leverage is very clear.
As a newbie, the whole trading interface always looks so strange to me. I’ve been experimenting with demo accounts. I can buy currency pair but I often don’t know how to sell it. Can you please give me a simple trading platform to follow. Thank you.

Reply
    Justin Bennett says

    You’re welcome. I would recommend reaching out to your broker as every platform is different.

    Reply
Arnau says

I’m very interested in all about trading, I gonna start in a few days, and that was a thing that didn’t got information, thanks sir! Show me more haha

Reply
    Justin Bennett says

    You’re welcome, Arnau.

    Reply
ali vahdat says

Thank you for your good article … I’ve got a lever … I’ll bet on the deals between 100 and 300 … I can comment on you …… Merci

Reply
    Justin Bennett says

    My pleasure. Cheers.

    Reply
George says

Thanks Justin for the info on leverage. I often get confused on then leverage and the volume/lot size when trading. kindly elaborate showing how these relate to one another if at all they do.

Reply
    Justin Bennett says

    You’re welcome. Leverage simply allows you to trade a larger position size. To calculate the position size for any trade, you need to determine a risk percentage or dollar figure and the stop loss distance.

    You can use the calculator at the link below. Just complete the fields on the left side and click ‘calculate’.

    https://dailypriceaction.com/trading-tools/forex-position-size-calculator

    Reply
Milton says

It seems easier to me to think in this manner:
Value of a pip in a standard lot = $10, mini-lot = $1, microlot = $0.10. To risk 100 pips/lot and $20/trade, trade 2 microlots. Similarly, to risk 50 pips/lot and $20/trade, trade 4 microlots.

Reply
    Justin Bennett says

    Sure, whatever is easiest for you. Thanks for commenting.

    Reply
HIGHLANDER says

Justin you are just on point, good value added. Please keep up the good work. Thumbs up.

Reply
    Justin Bennett says

    Cheers. Enjoy the holidays.

    Reply
Simon says

I started trading Forex 2 months back and I am already doing well..Am I doing it wrong?

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    Justin Bennett says

    Hi Simon, only you can answer that. But if you’re doing well, then you must be doing something right. Just take it slow and keep bets small while you learn. Cheers.

    Reply
Doug says

I just I just wanted to thank you for sending the e:mail posts every day
.
Also I wish you a Merry Christmas and all the best for the New Year
Doug

Reply
    Justin Bennett says

    You’re welcome, Doug.

    Merry Christmas.

    Reply
Vincent says

Thank you sir, the article was simple yet clear.

Reply
    Justin Bennett says

    Anytime, Vincent. Thanks for the feedback.

    Reply
Bowo Purnomo says

{Using the example above, if your stop loss was 50 pips from your entry, you would use a 4 micro lot position, or $4,000. That means you’re only using 4:1 leverage.}
Hi Justin! I think you wrong typing this sentence, it should be;
{if you have $ 1000 account, and you use a 4 micro lot position, or $4,000. That means you’re only using 4:1 leverage}

Reply
    Justin Bennett says

    The key words there are “using the example above”. That example used a $1,000 account.

    See here: “Two percent of $1,000 is $20 regardless of the leverage available.”

    Reply
Steve says

Thanks Justin for the article. As for me, I prefer taking advantage of the leverage. If the limiting factor is capital, then utilize the leverage but be careful with risk management. Chew as much as you can swallow

Reply
    Justin Bennett says

    You’re welcome, Steve. Nothing wrong with utilizing the leverage available to you, as long as you control the risk. It’s also only beneficial if you’re making money on a consistent basis. Otherwise, you’re just pouring gasoline on the fire.

    Reply
Godwin Okio says

Is there any disadvantage in none leverage when using small capital in trading

Reply
    Justin Bennett says

    Yes, you increase the risk of a margin call. See the link I gave in the article.

    Depending on your definition of small capital, your profits may also not be worth the time and effort.

    Reply
wenendah says

The explanation is easy and straightforward, that it is good and bad, but must be controlled. Thanks

Reply
    Justin Bennett says

    Absolutely! You’re welcome. Happy Holidays.

    Reply
ANANT says

NICE ARTICLE JUSTIN IT WAS VERY SIMPLE AS I KNOW YOY KEEP HELPING TRADERS KEEP THE GOOD WORK GOING HAPPY HOLIDAYS

Reply
ANANT says

HOW TO CHECK REGULATION OF A FOREX BROKER BEFORE OPENING AN ACCOUNT

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Mokwe Cyril Ignatius says

Just found you! No comments for now.

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bongani says

I have deposited into Xtrade last year and I did not know about leverage but now it seems like its fixed cause i ended up on margin call with $24 leverage of 1:400 and I’ve asked them to change it, so I can continue trading , They never came back to me about my request they said my manager will contact me?

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furqan ali khan says

i open account with 500$ what leverage should i use

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David says

How can one determine entry price, stop loss, and take profit from the trading charts.

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Arnold says

Hi Justin, lets say i have $1000 in my acc and I want to risk $10 per trade and my lavarage is 100:1, what amount should I take position with? I.e “buy/sell”.

Thanks.

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Leverage Trading says

High leverage is one of the advantages of trading forex. But in using high leverage one has to be careful because of the high risk involved. Great experience is needed to be able to trade high leverage and yield profit.

Reply
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