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The first table shows the calculation of the required collater | LiteFinance

The first table shows the calculation of the required collateral and deposit change for leverages with a classic lot of 100,000 USD.

Suppose that we are ready to start trading with a deposit of 1000 USD, with an acceptable risk per trade of 1% to the balance and an acceptable position drawdown of 1% with maximum portfolio diversification

Now we will calculate the maximum size of positions that we can open and the risk per trade, subject to the above rules.

In the table above, we see that with such risk management requirements, the optimal leverage on Forex is 100:1, since in this case we will be able to open 100 positions at once that meet our risk management rule, or several positions with a minimum risk.

From this example, it is obvious that for trading with a lower leverage, you need to increase your deposit so that you can actively trade with the required level of diversification.

You may say that this is a contradiction How does trading with a large leverage reduce risks? In fact, there is no contradiction. Liquidation risks do go down with higher leverage, provided that trading volumes remain the same.

All the disadvantages high leverage we told of above relate to the psychology of a trader and violation of money management rules, which is why it is so important to work on your trading strategy and discipline in trading.

Then the high leverage will not be a problem and will not lead to losing the deposit.

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