Trade with Leverage
Leverage or gearing effectively multiplies a client’s deposit or account value. This provides a client with the ability to hold larger positions than their initial deposit would cover. In other words traders can hold open positions, with only a fraction of the positions underlying value required as a deposit or margin. Leveraging your funds means you can make larger trades or a higher number of trades than your initial deposit on its own would allow*.
*The use of leverage can magnify profits but it can do the same for losses. Forex and CFDs are leveraged products, involve a high level of risk and can result in the loss of more than your invested capital. Please consult our full risk warning notice.
Leverage
Leverage allows you to hold a larger position than the initial cash deposit. Your initial outlay is supplemented to increase the value of your underlying investment. The higher the leverage, the larger the position the trader can execute for the same amount of the initial deposit.
For example, a client using 30:1 leverage could hold a position in the forex market of $30,000 with a margin of $1,000.
Leverage increases the potential of high returns when the market moves in their favour. However, please note that leverage will act against you when the market moves in the opposite direction to your prediction.
Leverage Levels
Different leverage levels apply to different account types.
Margin Requirement
When an investor opens an account with a broker, an initial deposit is required in order to open a position in the market. The required cash deposit will act as a deposit to cover any credit risk. Depending on the agreement, the investor could be able to leverage up to a certain limit.
The margin requirement for a forex trade is calculated using the following formula:
Margin = (Lot Size * Contract Size * Opening Price) / Leverage
The examples below are based on a Standard/Classic account with a leverage of 30:1.
Forex
Margin requirement for one standard contract position in EUR/USD at 1.2500 is calculated as follows:
Margin = (1 * 100,000 * $1.2500) / (30) = $4166
Spot Gold
Margin requirement of one standard contract position in Gold at 1579.01 is calculated as follows:
Margin = (1 * 100 * $1579.01) / (20) = $7895
Spot Silver
Margin requirement for one standard contract position in Silver at 28.70 is calculated as follows:
Margin = (1 * 5000 * $28.70) / (20) = $7175
Note: Interest is not required to be paid on the borrowed amount, but if the investor decides to hold his position overnight, interest will be charged as the rolled over rates on the total positions held.
Margin Call
Margin Call is a level set by a brokerage that defines the minimum amount of money required to trade in the market. When your account falls below the margin call level, you will need to make an additional deposit to maintain your positions. Alternatively, you can close some of your positions to reduce your required margin. At Blackwell Global, Margin Call is set at 80%.
Stop Out Level
In the event you are unable to maintain sufficient funds in your account after hitting Margin Call, and if your account value depreciates to the Stop Out level, all your open positions will be closed automatically to prevent further loss to your capital. At Blackwell Global, Stop Out level is set at 50%.
