What is Leverage in Indices Trading?
Indices Trading Leverage Example
The definition of stock indices leverage is having the means to control a large amount of money using very little of your own money and borrowing the rest - this is what makes the stock indexes trading market to attract many investors.
What does a stock indices leverage of 1 100 mean?
When Indices Trading using indices trading leverage it means that as a indices trader you can open trade positions that are larger than if you were using only the amount of money in your indices trading account without leverage.
With stock indices leverage you can use your money that is in your stock indexes trading account to borrow from your indices broker through what is known as indices leverage. For example if you have a indices trading account with $100 dollars - you can use your $100 and borrow using the stock indices leverage of 1:100, which means that you will borrow $100 from your indices broker for every $1 in your stock indexes trading account and after stock indices leverage you will have $100*(1:100 Leverage) = $10,000.
Indices Trading stock indices leverage is written in the form of a ratio:
for example indices trading leverage 1:100 or 1:50 or 1:10
Sometimes the stock indices leverage ratio can also be written as 100:1 or 50:1 or 10:1 depending on your stock indexes trading broker.
This ratio just explains the amount of indices trading leverage whether it is written 100:1 or 1:100.
Leverage of 1:100 means you have borrowed using 1:100 and increased your trading capital 100 times.
Leverage of 1:50 means you have borrowed using 1:50 and increased your trading capital 50 times.
Leverage of 1:10 means you have borrowed using 1:10 and increased your trading capital 10 times.
We shall us this stock indexes trading example to explain what indices trading leverage is? If your indices broker gives you stock indices leverage of 100:1 (this is the best option to choose as the maximum stock indices leverage for any indices account)
This means you borrow 100 dollars for every dollar you have in your Indices Trading account.
To put in another way your broker gives you 100 dollars for every 1 dollar in your indices account. This is what is known as leverage.
This means if you open a indices trading account with $1,000 and your stock indices leverage is 100:1, then your get $100 for every $1 you have, the total amount you will control is:
If for 1 dollar the indices broker gives you 100
Then if you have 1,000 you will get a total of:
$1,000 * 100 = 100,000 dollars
Now you control 100,000 dollars of capital in your stock indexes trading account that you can open trades with
Most new indices traders ask what stock indices leverage is best for 100 dollars, or 500 dollars, or 1,000 dollars indices trading account? - The best option to choose when opening a live Indices Trading account is always 100:1 and not 400:1.
About Indices Trading Leverage
The more stock indices leverage you use the greater the profit or loss
The less stock indices leverage you use the lesser the profit or loss
It is therefore better to use less indices trading leverage so as to minimize the risks involved. The higher the stock indices leverage used the higher the risk. This is one of the Indices Trading indices trading leverage rules not to trade with more than 5:1 leverage.
In Indices Trading indices trading leverage rules: It is always advisable to stay below 10:1 which is still high, most professional money managers use 2:1 in their Indices Trading account.
To Learn and Know More about Indices Trading Leverage and Margin - Read the Topics Below:
Indices Trading Leverage and Margin Explained