Trade Stock Indices

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 can trade with if you choose & select to) and 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 example above:

If your online broker has extended a maximum stock trading leverage of 100:1 to you, and you subsequently open trades equivalent to $100,000 in contract size, your utilized leverage is calculated as:

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're given 100:1 Maximum trading leverage or 200:1 Maximum 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 will still select 100:1 max 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.

For trading indices, one rule stands out: keep leverage below 5:1 as part of your equity management plan.

Leverage Example

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

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

What distinguishes Maximum Indices Leverage from Used Leverage?

In the image above, the online trader is using $2683.07, the amount controlled is $268,307 dollars, but the trading equity is $16,116.55 dollars, therefore the leverage used is ( $268,307 dollars divided by 16,116.55 ) = 16.64 : 1

16.64 : 1

In the account shown, the max leverage for stock trades is 100:1. But the used leverage sits at 16.64:1.

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Stock Index Broker