This question is based on this example: 250 pips realized using a 1:20 leverage on a mini lot 10K: it means a profit of 10,000 x 0.0250 x 20 = 5000 USD (so the equation is a mini lot 10K x # of pips or 250 x leverage 20 = profit 5K; forget how to get those numbers that's not the essence of the question but rather how on earth to accomplish this equation?

In other words not the strategy of how to make 250 pips in one trade but rather how it's technically possible in a scenario to accomplish those numbers (and be as creative as you like), because to me the difference seems to be in the leverage but every broker tells a pip is worth the same regardless of leverage

It got me thinking how is 1:20 leverage different than 1:100 obviously it's a greater deposit on the trade than 1:100 but what is the main advantage then?

So I asked a few brokerage companies (won't give out names) about leverage and here were the common numbers and explanations:

Leverage 1:1
The margin requirement = US$ 100,000 Per 100,000 base currency position.
The margin requirement = US$ 10,000 Per 10,000 base currency position.

Leverage 1:50
The margin requirement = US$ 2,000 Per 100,000 base currency position.
The margin requirement = US$ 200 Per 10,000 base currency position.

Leverage 1:100
The margin requirement = US$ 1,000 Per 100,000 base currency position.
The margin requirement = US$ 100 Per 10,000 base currency position.

Leverage 1:200
The margin requirement = US$ 500 Per 100,000 base currency position.
The margin requirement = US$ 50 Per 10,000 base currency position.

so these may seem like simple numbers to many traders but first of all the only ones I do understand are 1:1 and 1:100 and I know this is simple math but I'm a block head when it comes to math even really simple math that's why I like plug in data equations.

Both brokers that I asked said that each pip on a standard lot is worth $10 and each pip on a mini lot is worth $1 regardless of the leverage!

Which brings me to my questions:

1) If you were trading on a standard lot at a 1:20 leverage what is the advantage (if 1 pip is still worth $10) than trading with a 1:100 leverage? I just don't see it! What am I missing here?

2) On the initial equation up top without trading more than one lot how would this be possible? Or is it impossible to accomplish given the pips realized without trading more than one lot?

3) Does someone have an equation to figure out a 1:20 leverage and what the margin would be on a mini and standard lot?

I think I've over thought these questions to the point where my brain is mush but I wouldn't be able to sleep tonight without at least posting this thread (or else the question would still have been turning in my head). Ok I set it free, it's out there.

Comments, insults, more questions, etc. welcome! I just want some resolution.

Thanks for hanging in there

hey mars,

your lot size is 10,000.

leverage determines how much in your account you need to trade that lot size.

if leverage is 1:1 (i.e. no leverage), you need 10,000.

if leverage is 1:2, you need 5,000.

now let's say the market moves 1,000 pips. whether you are trading 1:1 or 1:2, you still earn $1,000.

BUT...

if you are trading 1:1, you earned 10% (since 1,000 is 10% of your account, which had 10,000). if you are trading 1:2, you earned 20%, since since 1,000 is 20% of 5,000.

put another way, 1:2 allows you to trade twice as much as you would if you had 1:1 leverage.

for instance, let's say you have 10,000 in your account. if leverage is 1:1, you can only trade a 10,000 position. if leverage is 1:2, you can trade a 20,000 position -- which will allow you to earn $2 per pip instead of $1 per pip, because you are trading twice as much.

i hope this helps. i know leverage, margin, and the relationship between the two is an involved concept, but definitely one worth learning well, as it is at the heart of money management in forex. david has made some great videos on leverage, and we've had some other great articles on it as well -- you can check all that out in our section on leverage.

Simit thanks for the explanation, I will check out the videos and the section. Sorry for posting in the wrong place. You have allowed me to sleep tonight.

no problem mars, my pleasure.

and just to clarify, you posted in the right section -- so if you have any other questions, you can always feel free to post them in the ask/answer questions forum.