How Leverage Works in the Forex Market.
Trading leverage is a popular financial tool that allows you to increase the opportunities and profits of a trader. The Olymp Trade platform has its specifics, in which the multiplier = leverage. The multiplier allows traders to access much more significant trading amounts than they could with their own funds. This article considers how leverage works in Forex and its operation on the Olymp Trade platform.
What Is Leverage in Forex? The Popularity of Trading Leverage in Forex The Multiplier on Olymp Trade How to Calculate Profit and Losses What Amount of Multiplier is Optimal? Summing up.
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What Is Leverage in Forex?
The trading leverage is used with margin trading in financial markets. In simple terms, this financial instrument allows a trader to trade in volumes that significantly exceed his own funds.
The leverage size can exceed the amount of the trader's deposit by tens and even hundreds of times.
The Popularity of Trading Leverage in Forex.
Investing less money with greater profitability makes leveraged trading of financial assets popular amongst Forex traders. In addition, it allows you to open many transactions, thereby allowing traders to diversify their investment portfolios.
With a clever strategy, leverage is a financial instrument that allows a trader without significant capital to conclude large transactions and increase their investment capital over a short time.
How Leverage Works in Forex.
For example, your trading account is $100 and using the x100 leverage, your total trading volume will be $10,000 ($100 x 100 = $10,000). As a result, the financial return of this position will be greater than if you traded $100 using smaller leverage.
The Multiplier on Olymp Trade.
The Olymp Trade multiplier, like Forex leverage, multiplies the amount of your investment by a certain amount. The multiplier value shows how many times the total trading volume will increase.
Using the minimum multiplier value is the right choice if you choose long-term investments. However, a high multiplier value is suitable for active trading when an investor makes a lot of transactions during one day.
It is important to know that using a multiplier increases the size of the potential profit and the level of risk of the transaction. Remember, regardless of the size of the multiplier, the loss on your trade cannot exceed the amount you invested in it.
How to Calculate Profit and Losses.
You can calculate the profit from the use of multipliers using a simple formula:
(Difference between the opening and closing of the trade / Current price) * Investment’s volume *Multiplier – Commission = Profit.
For example, if you opened a trade for EUR/JPY with the opening price of 135. The closing price is 135.5. Investment of $100, x500 multiplier and opening commission of $4.
You will get a ((135.5 – 135) / 135) * 100 * 500 – 4 = 181.18 $ in profit.
The same formula is used to calculate losses. Let's say we made an up trade, but the price didn't rise and instead fell to 134.5. In this case, the formula looks like this.
((134.5 - 135) / 135) * 100 * 500 - 4 = -189.18 $
However, given that the maximum risk of a transaction on Forex Olymp Trade is equal to the amount of the transaction itself, the transaction will be closed earlier. To calculate the maximum price limit, you need to solve the following simple equation:
((X - 135) / 135) * 100 * 500 - 4 = -100$ X = 134.74 ->
The broker will automatically close the transaction at such a price with such parameters (multiplier, commission, and investment amount).
You can find the information about the minimum and maximum multiplier values in the "Help" section of the "Assets" menu.
How to Use the Multiplier on Olymp Trade.
Here is how you can set a multiplier on a trade in the Forex trading mode on Olymp Trade.
Fig. 1. Gold chart with the trade opening window.
To open a multiplier trade on Olymp Trade, you need to follow these simple instructions:
Enter the Forex trading mode and select the desired asset. Enter the amount of the transaction and click on the multiplier icon. Choose the direction of trade and the multiplier. Open the trade and start earning.
Know that leverage is not available for FTT mode and for Stocks. You can learn more about these trading modes in the Help Center.
What Amount of Multiplier is Optimal?
Remember that the amount of trading leverage depends on the volatility and the asset. The multiplier values may vary for different asset types.
Assets Minimum Multiplier Maximum Multiplier Currency Pairs x50 x500 Cryptocurrencies x5 x10 Metals and Commodities x10 x50 Indicies x30 x100 Stocks N/A x20 ETF N/A x5.
For example, if a trader buys a cryptocurrency with 1:10, the open position will be ten times the size of the deposit. However, do not forget that the losses on Olymp Trade multipliers can't exceed the amount of original funds invested into that specific trade.
The images below show the minimum and maximum multiplier on every instrument you trade.