Course 5 Beginner

Leverage, Margin & Risk

The numbers that decide whether an account survives: leverage, margin, position size and risk per trade, with worked examples.

0 of 13 lessons

Module 1: Leverage

1
What Is Leverage?
Leverage lets you control a position much larger than the money you put up. At 1:30, a deposit of 1,000 dollars controls a 30,000-dollar position; at 1:500 it...
2
Leverage Ratios and Exposure
A leverage ratio such as 1:30 states the maximum position value the broker allows per unit of margin. Exposure is the actual total value of your open...
3
Effective Leverage
Effective leverage is your total exposure divided by your equity, and it is the truest measure of how aggressively an account is trading. A retail account...

4
Required, Used and Free Margin
Required margin is the deposit a single position needs, equal to its notional value divided by the leverage. Used margin is the total required margin of all...
5
Equity and Margin Level
Margin level is equity divided by used margin, expressed as a percentage, and it is the number the broker watches. At 1,000 percent you have ten times the...
6
Margin Calls and Stop-Outs
A margin call is the broker's warning that your margin level has fallen to its threshold, typically 100 percent, and that you should add funds or close...

7
Lots and Units
Forex is traded in lots. A standard lot is 100,000 units of the base currency, a mini lot is 10,000, a micro lot is 1,000, and some brokers offer nano lots of...
8
Pip Value
Pip value is the amount of money one pip of movement is worth on a given position, in your account currency. For a pair quoted in your account currency it is...
9
Position Sizing
Position sizing is choosing how many lots to trade so that the distance to your stop loss risks exactly the share of the account you have decided to risk. The...

10
Risk per Trade
Risk per trade is the share of your account you are willing to lose if a single trade hits its stop. One percent is the conventional figure for a beginner, two...
11
Stop Distance and Risk-to-Reward
Stop distance is how far the stop loss sits from the entry, in pips, and risk-to-reward is the ratio between that distance and the distance to the target. A...
12
Maximum Loss and Drawdowns
A drawdown is the decline from an account's peak to a subsequent low, measured as a percentage of the peak. Maximum drawdown is the largest such decline over a...
13
Position Correlation
Correlation is the tendency of two instruments to move together. EUR/USD and GBP/USD usually rise and fall together; EUR/USD and USD/CHF usually move in...

Every lesson's knowledge check plus a few extra questions, scored with feedback. Then continue to Course 6: Reading Charts & Technical Analysis.