Not “how many times can I trade?” but “how far into my account does a small move reach?”
Leverage is a distance, not a multiple.
In one second
A way to stand close to a large price movement with little money. Both profit and loss move with the size of the trade. A maximum multiple is not a measure of safety.
In one second
- Look at the amount you are moving, not how small the account is.
- Less margin does not necessarily mean a smaller loss.
- A percentage move applies to the whole trade size.
- If you look at leverage, look at the distance to a forced close too.
Close the multiple. Measure the distance.
The figures below are simplified examples that show the mechanism. Real margin, forced closes, profit and loss, and costs vary by product, entity, account terms and market conditions.
It is not the margin that moves.
Profit and loss come from the movement of the whole position, not only from the margin you put up. So the first number to look at is not the maximum leverage but the total value of the position.[1]
Margin is not an entry fee.
Margin is an amount set aside, much like collateral, to open and keep a position. It is not spent like a fee, but while the trade is open it leaves the pool of money you can freely use.[3]
A 1% move is a loss of what percentage?
If a $100,000 position moves 1% against you, the loss is roughly $1,000. Even if the required margin was $1,000, that does not mean you lost “only 1%”.
What matters is the room that is left.
As open losses reduce your equity and it falls below the maintenance condition, positions may be closed automatically. The threshold, the unit of calculation and the order differ by firm and contracting entity, and in fast markets the price can jump past the expected level.[2]
The same multiple does not carry the same danger.
Four deeper notes
The set multiple and the effective multiple.
The maximum leverage you can select and how many times your account’s money the position actually is are two different things. Trade smaller and the effective load changes.
Free margin is not a loss limit.
“Available margin” is the room to open new trades and absorb moves. It is not a guarantee that losses will stop at that amount; costs and multiple positions also matter.
A stop is not a promised price.
An ordinary stop order is executed after the price reaches the chosen level. When prices gap, the fill can differ from the level you set.
Check protection entity by entity.
Forced-close thresholds, margin calls, negative balance protection and eligible clients differ by jurisdiction and contracting entity. Do not judge from the brand-wide description alone.
Seven measurements before you place an order.
- What does one lot actually represent — how many currency units, ounces or shares?
- Even at the minimum trade size, what is the total value of the position?
- What leverage actually applies to that instrument?
- Which formula and which price are used to calculate required margin?
- What is the profit or loss for a 1% move?
- At what percentage is the forced close set, and for the whole account or each trade?
- Do negative balance protection and fast-market rules apply to your contracting entity?
The $100,000, $1,000 and 1% figures are assumptions used to explain the mechanism. They exclude costs, spread, conversion, slippage and tiered leverage.
Next, read one line from two countries.
Once you have measured the distance of a trade, tell apart the forces on both sides of USD/JPY.
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