Leverage & Margin
What is leverage
Leverage is the ability to control a large trade size in the market with a smaller initial requirement. Levels of leverage available to traders can vary from company to company, and on the currency pair. Without leverage the trader would need to pledge or transact with the entire size of the contract.
If the trader places a margin or a proportion of the overall contract size, which is dependent on the level of leverage used and number of contracts traded, then the remaining proportion of the contract value is support in credit terms by the broker.
Synergy FX allows clients to trade with leverage levels of 1:1 up to a maximum of 500:1.
A standard contract (known as a “lot”) is generally $100,000. A client using 100:1 leverage would be required to place a $1,000 margin to place a trade size of $100,000 (100,000 / 1000). A client using 500:1 leverage would only be required to place a $200 margin for the same trade size (100,000 / 500). This looks great but you need to be aware that the higher the leverage, the higher the risk to you.
Synergy FX clients can chose the level of leverage as a way to manage risk.
The formula to calculate the amount of margin required to place a trade is:
Margin = (Contract size / Leverage)
In addition, as well as standard lots ($100,000), Synergy FX offers mini-lots ($10,000) and micro-lots ($1,000).
A mini-lot is 10% of the standard contract size, whereas a micro-lot is 1%. Clients trading with smaller trade sizes will benefit from smaller margin requirements if the level of leverage remains the same.
As above, a client with 100:1 leverage trading s standard lot ($100,000) requires a $1,000 margin. However if the client trades a min-lot, which is $10,000, then the margin requirement is $100 (10,000 / 100); and only a $10 margin is required for a micro-lot.