How do I calculate leverage?
Margin and leverage are two sides of the same coin. While margin is the good faith deposit traders need to maintain open positions, leverage is the ratio between the margin that the trader had to set aside, and the notional value of the position.
To understand the true size of your positions, you have to consider the notional value of the position created. Once you have the Notional Volume, you can calculate the actual leverage used. We`d like to emphasize that leverage is a double-edged sword and can dramatically amplify your profits as well as losses. Trading foreign exchange/CFDs with any level of leverage may not be suitable for all investors.
FX example - USD/CAD
I want to open a 100k position in USD/CAD, in a CAD denominated account. The price of USD/CAD is 1.3150, and the Minimum Margin Requirement is 230 CAD for 10K*, therefore for 100K it will be 2300 CAD.
Using the first formula we can calculate the Notional Volume first:
Notional Volume = 1.3150 x 100 000 = 131 500 CAD (notional value)
Following the formula above, we can calculate the leverage for our position in USD/CAD.
CFD example – GER30
I want to open 10 contracts on GER30, in a CAD denominated account. The price of GER30 is 13,561.49 and the Minimum Margin Requirement is 330 CAD for 1 contract, therefore for 10 contracts it will be 3300 CAD*.
Just like in FX, we first need to calculate the notional volume. The calculation is very similar, except that in CFDs there is a "multiplier" factor added in that varies with every product. You can see these multipliers here.
Notional Volume = (13,561.49 * 0.1) * (10) * (1.44935) = 19,655.34
Following the formula above, we can calculate the leverage for our position in GER30.
The free True Leverage app (only for Trading Station Desktop) can help to keep an eye or your leverage: https://www.fxcmapps.com/apps/true-leverage/**.
**Please note that by clicking this link, you will be leaving the main Friedberg Direct website and you will be redirected to https://www.fxcmapps.com/ (“FXCM Apps Store”). Friedberg Mercantile Group Ltd. (“Friedberg Direct”) is an independent legal entity and does not own, control or operate the FXCM APPS store. Therefore, Friedberg Direct does NOT endorse or make any warranties regarding any product or service offered on the FXCM Apps Store, nor has reviewed or verified any information that might be presented and/or described on the FXCM Apps Store and does not warrant it’s appropriateness. The link is provided for your convenience only.
* In Canada, the Investment Industry Regulatory Organization of Canada (IIROC) is the national self-regulatory organization that set the margin requirements needed, which may be changed at any time without notice. For more information see http://www.iiroc.ca/news/Pages/Notices.aspx
The relationship between Friedberg Direct and FXCM was formed with the purpose to allow Canadian residents access to FXCM's suite of products, while maintaining their accounts with a regulated Canadian firm. All accounts are opened by and held with Friedberg Direct, a division of Friedberg Mercantile Group Ltd., a member of the Investment Industry Regulatory Organization of Canada (IIROC). Friedberg customer accounts are protected by the Canadian Investor Protection Fund within specified limits. A brochure describing the nature and limits of coverage is available upon request or at www.cipf.ca.