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