1:100 leverage vs 1:500? Do you choose the former or the latter?
Well, the answer to this question really depends with your account size. In simple terms, 1:100 means that for every $1 that you have in your account balance, you will control a $100 trade.
Similary, when you have 1:500 leverage, it will mean that your $1 can control a $500 trade.
1:100 leverage vs 1:500: What is the best leverage for your account size?
First of all, the ideal account size for any beginner would be $2,000 (I recommend this to my students). I only work with students who are willing to start with this account balance because the strategy I use works best when you have $2,000 + in your trading account.
If you have a $2,000 account and you would like to implement a proper risk management strategy on your account, then it would be appropriate to pick 1:50 or 1:100 leverage on the higher side.
If you have a $10,000 account balance (this is for intermediate traders), then it would be safe to go for a 1:500 account leverage.
You should realize that the more you leverage your account, the more volatility you will experience in your position and account balance as the market ebbs and flows.
If you over-leverage (say 1:500 on a $1000 account), then small fluctuation in the market can result in a bigger profit or loss in a short period of time. In this case, if the market fluctuates by -30 pips for instance, you will be seeing a very big negative floating balance compared to someone with the same account size but small leverage.
Why some traders go for 1:100 yet others are daring to go for 1:500 leverage?
Ideally, a 1:500 leverage would be suitable to a $10,000 account but it is still not unusual to find a person trading a $2,000 account on a 1:500 leverage.
If you’re not sure what leverage you should use in your account, remember the golden rule which says that you should never risk 1-5% of your account balance on any given trade.
When you enter a position and find that even a small market fluctuation in the negative is causing a huge negative floating balance, then it means you have over-leveraged your account.
But if you have a negative floating balance that is reasonable (in relation to the size of your account), then it means you have the correct leverage for your account.
You will sleep better if you implement proper leverage/risk management
Now that we have learned that 1:100 leverage vs 1:500 is something that really depends on many factors, we should be conscious of the fact that a higher leverage also denies you a peaceful sleep.
As a professional trader, I always want to execute a trade and leave that trade to run without the need to monitor this trade after every one hour.
For you to sleep better at night (the way I taught in the last lesson), you should really have a strategy that gives you less stress and more consistent profits.
The mistake that beginners make is that they over leverage their accounts so that every trade always looks like it is either making 100% returns or nearly wiping out the account balance.
If you ever felt like that and are still determined to trade the market and make a consistent return, just shoot me an email.
Ultimately, 1:100 leverage vs 1:500 leverage is only a question that newbies ask. Now that you know, I hope you will be a better trader.