Lesson 4: How to Calculate Your Leverage Ratio Part 2
Lesson 4: How to Calculate Your Leverage Ratio Part 2
In our last lesson we looked at how to determine how much leverage you are using when trading currency pairs in which the US Dollar is the base currency in the pair. In today's lesson we are going to continue our free forex trading course with a look at how to determine how much leverage you are using when the US Dollar is not the base currency in the pair.
As we have learned in previous lessons, in this particular demo account we are trading a contract size of 100,000 of the base currency in the pair. When the US Dollar is the base currency in the pair thats $100,000 per contract which, as our accounts are based in US Dollars, makes the leverage calculation fairly easy.
When the base currency is not the US Dollar however the computation for the amount of leverage employed becomes a bit more difficult, as in these cases we are trading 100,000 of of that currency, not the US Dollar. In short, what this means is that to get the amount of leverage utilized in these cases we must convert the trade size into US Dollars, and then divide that by the equity in our account.
To help illustrate this concept lets look at a couple of examples. Lets say I am trading 2 contracts of EUR/USD with an account balance of $100,000. As we have learned in previous lessons 2 contracts of EUR/USD is 200,000 Euros against the equivalent amount of US Dollars.
As we also learned, the rate in the dealing rates window for the EUR/USD or any other currency pair for that matter, is how much of the second currency in the pair it takes to buy 1 of the first currency. As of this lesson EUR/USD is trading at 1.5976 so 1 Euro is worth $1.5976. As we are trading 200,000 Euros we multiply 1.5976 times our 200,000 Euro position size to get our position size in dollars which equals $319,520.
Now that we know our position size in US Dollars, to get the amount of leverage utilized on this trade, we simply divide $319,520 by our $100,000 account balance, which gives us a leverage ratio of 3.20 to 1.
The process to calculate the leverage employed for currency pairs which do not include the US Dollar at all is the same, but be sure to use the rate for the base currency and the US Dollar to calculate the position size in US Dollars.
As an example here if was trading 1 contract of EUR/JPY then I am trading 100,000 Euros against the equivalent amount of Japanese Yen. As our account is in US Dollars we need to calculate how large a position this is in US Dollars, so we don't really care about the Japanese Yen in this situation. With this in mind we simply take the rate of the Euro US Dollar currency pair, which as of this lesson is $1.5976, and multiplying this by our position size of 100,000 Euros. We then take the result of this calculation ($159,760) and divide it by our account balance of $100,000, which gives us a leverage ratio of 1.60 to 1.
To help make this process easier I have created a spreadsheet which you can find attached to this lesson if you are watching on InformedTrades.com. If you are watching on YouTube I have included a link to this lesson in the description section to the right of this video.
For the homework assignment tonight I encourage you to calculate the leverage utilized on several trades in currency pairs which do not include the US Dollar in the pair, and feel free to post your results in the comments section of this lesson.
Thats our lesson for today, in our next lesson we will look at the different order types available in the forex market so we hope to see you in that lesson.
Actionable trading levels delivered to YOUR charts in real-time.
Sun 10 Mar 2019 AA CA/US- Clocks Move forward one Hour Mon 11 Mar 2019 AA 13:30 US- Retail Sales Tue 12 Mar 2019 AA 09:30 UK- Trade/Output AA 13:30 US- CPI Wed 13 Mar 2019 A 13:30 US- Durable Goods A 13:30 US- PPI A 16:00 US- EIA Crude Thu 14 Mar 2019 A 13:30 US- Weekly Jobless Fri 15 Mar 2019 AA 03:00 JP- BOJ Decision A 14:15 US- Industrial Production A 15:00 US- Flash Univ of Michigan
Mon 18 Mar 2019
No Major Data
Tue 19 Mar 2019 AA 09:30 UK- Employment A 12:30 US- House Starts/Permits Wed 20 Mar 2019 AA 09:30 UK- CPI A 16:00 US- EIA Crude AA 18:00 US- Fed Decision Thu 21 Mar 2019 A 01:30 AU- Employment A 07:30 US- SNB Decision AA 09:30 UK- Retail Sales AA 12:00 UK- BOE Decision A 12:30 US- Weekly Jobless Fri 22 Mar 2019
Flash PMIs all day AA 12:30 CA- Retail Sales/CPI
Global-View Affiliate Program
We are starting an affiliate program to market some of our products.
Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.
Put the word "affiliate" in the email subject line.
Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.