What's Leverage in Indices Trading?
Stock 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 indices trading market to attract many investors.
What does a Indices leverage of 1 100 mean?
When Indices Trading using trading leverage it means that as a trader you can open trade positions which are larger than if you were using only the amount of money in your indices account without leverage.
With stock indices leverage you can use your money that's in your stock indices trading account to borrow from your indices broker through what's referred to as indices leverage. For examples if you have a indices trading account with $100 dollars - you can use your $100 & borrow using stock indices leverage of 1:100, which means that you will borrow $100 from your indices broker for every $1 in your stock indices account & after stock indices leverage you will have $100*(1:100 Leverage) = $10,000.
Indices Trading stock indices leverage is written in form of a ratio:
For example indices leverage 1:100 or 1:50 or 1:10
Sometimes the stock indices leverage can also be written as 100:1 or 50:1 or 10:1 depending on your stock indices 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.
Example:
We shall us this stock indices examples to explain what indices leverage is? If your indices broker gives you stock indices leverage of 100:1 (this is best option to select 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's known as leverage.
This means if you open a indices account with $1,000 and your stock index leverage is 100:1, then you get $100 for every $1 you that you have in your indices account, the total amount which you will control is:
If for 1 dollar the 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 dollars of capital in your stock indices 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 select when opening a live Indices Trading account is always 100:1 and not 400:1.
About Stock Indices Trading Leverage
The more stock indices leverage you use the greater the profit or loss
The less stock indices trading leverage that you use the lesser the profits or losses
It is therefore better to use less indices trading leverage so that to minimize the risks involved. The higher the stock indices leverage used the higher the risk. This is one of the Indices trading leverage rules not to trade with more than 5:1 leverage.
In 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 & Know More about Indices Leverage & Margin - How to Read the Topics Below:
Indices Leverage and Margin Explained
