What's Difference Between Maximum Stock Leverage and Used Leverage?

You as a trader should note that there is a difference between maximum leverage ( leverage given by your broker which is the highest stock leverage you as a stock indices trader can trade with if you choose to) & used leverage ( leverage depending on lots you've opened/open trades). One is broker's (Max) & other is trader's (Used). To explain this particular concept we will use stock trading example above:

If your online broker has given you 100:1 Maximum stock trading leverage, but you only open lots of $100,000 then Used leverage is:

100,000 : $10,000 dollars (your money)

10:1 Used Leverage Ratio

You have used 10:1 leverage, but your max leverage is still 100:1. This means that even if you are given 100:1 Maximum trading leverage or 200:1 Maximum trading leverage, you do not have to use all of it. It's best to keep your used leverage to a max of 10:1 but you'll still select 100:1 maximum leverage ratio for your account. The extra trading leverage will give you what we call Free Indices Trade Margin, As long as you have Free margin on your account then your stock trades won't get stopped out by your broker because the margin requirement will remain above the required level.

In trading indices one of your indices rules: equity management guide-lines on your trade plan should be to use leverage below 5:1.

Leverage Example

The examples presented below, the set leverage is 100:1, margin which is 1 percentage is $2683.07, therefore the total amount controlled by the trader is: $268,307 - this is because with this leverage the trader has used little of his money & borrowed the rest of the money, with this set at 100:1, trader is using 1 % of their trading capital, this 1 percent% equals to $2683.07 dollars, if 1% equals to $2683.07 dollars then 100% is $268,307

What is the Difference Between Maximum Indices Leverage and Used Leverage?

What's the Difference Between Maximum Indices Leverage and Used Leverage?

In the above image screen shot example, the online3 trader is using $2683.07, total controlled amount is $268,307 dollars, but trading equity is $16,116.55 dollars, henceforth used leverage is ( $268,307 dollars divide by 16,116.55 ) = 16.64 : 1

16.64 : 1

In the trading account above even though the max trading leverage set stock trade leverage is 100:1, Used leverage is 16.64 : 1

Study More Lessons:

Trade Stock Indices

What's Difference Between Maximum Stock Leverage and Used Leverage?

Leverage Example