Need help: leverage calculation

Discussion in 'Forex Brokers' started by Dleiman, Mar 17, 2007.

  1. Dleiman

    Dleiman

    Hello everybody

    Can anybody please tell me what does it exactly mean?
    They saying:
    Every dollar on your deposit allows you to purchase up to 100 units of another currency. For example, if your deposit is $1,000 you can purchase: 100,000 EUR/USD or 100,000 GBP/USD .
    It is almost 200:1 leverage for GBP trade? Is it?


    Many many thanks
     
  2. Yes, it is. GBP 100,000 x USD/GBP 1.9420 / USD 1,000 = 194.2:1 leverage.

    Without knowing anything else about who "they" are, such flaky, arbitrary terms throw up a red flag about that market maker.
     
  3. This does not say anything particular, good or bad, about this broker. The people should simply know in general that forex is unregulated, over the counter business so they have to be extra careful with any broker.
     
  4. I would argue strongly that it does. First, under that policy, available leverage depends dramatically on the currency pair: from as low as 69:1 for NZD/USD to 194:1 for GBP/USD at current exchange rates, a wide, nearly 3x range. That's just on the majors; how are the crosses treated?

    Second, available leverage always keeps changing as the rates change. If, say, cable goes to 2.20 or sterling-yen to 250, that policy implies that your leverage keeps increasing as well.

    Third, leverage and margin, by definition, must be expressed in the same currency as the account, position or trade value. Not apples to oranges.

    For all those reasons, I believe that no legitimate forex broker or dealer would ever design their margin / leverage mechanism that way.

    Agree on the "extra careful" part, and that's a perfect example: a huge red flag right there.
     
  5. Dleiman

    Dleiman

    Thanks to all!
    From one hand these terms looks very simple to use. Account Balance $5000*100= $500,000 maximum trading size in any currency. But from other hand your maximum leverage on AUD/USD and NZD/USD less then 100:1!

    I’m going to check it out following Monday.

    Thanks again!