Is leverage that multiplies your capital by 1000 too much? Start trading Forex with extraordinary leverage! Is 1000x leverage the best leverage in trading? In the trading world, traders who use leverage are seen as particularly daring. Among them, some do not hesitate to use leverage that defies all logic, reaching multipliers of 1000 and beyond. Here is their story.
How to Calculate 1000x Leverage
Calculating 1:1000 leverage is simple. We are going to go through the steps needed to calculate such leverage, so you will be able to work out your margin and the real value of your position. If you want to make life even easier, you can use a leverage calculator at this address.
To understand how leverage is calculated, you need three pieces of information:
- your leverage level
- the price of what you are buying
- the price change, also called volatility, i.e. the percentage gain or loss.
On related topics, our articles “Vantage Leverage” and “Islamic Leverage” complement this read well.
Example:
- Your leverage level is 1000
- you buy one Forex lot worth €100,000
- the price rises by 1%
In this example, you have leverage of 1000 and the price is 100,000. With these two pieces of information, we can already calculate what you will have to pay to open this trade. This is called the margin. It is the share you have to pay; your broker advances you the rest. That’s right: leverage is a loan.
Margin is calculated with the following formula:
- Purchase price / leverage level
So in our example:
- = 100,000 / 1000
- = 100 euros.
Margin and 1000x Leverage
The margin you need to put on the table to trade a €100,000 lot is €100. In other words, you can open a trade worth €100,000 for one thousandth of the price.
But why put up margin rather than simply open a trade for free? That is almost what you are doing. The margin has a symbolic value when you trade, but it serves another purpose. Margin lets your broker know that you can absorb at least a certain amount of loss. We will see how margin works if the market moves against you.
You have opened a €100,000 Forex position with 1:1000 leverage. So there is an open position in your broker account, and €200 of margin is taken from your balance to go towards this position.
What Is Leverage?
Leverage can be seen in two different ways. If you see it as a client, as the end user of leverage, then for you it is a multiplier.
- With 1000x leverage, you multiply your capital by 1000. By doing so, you multiply your gains by 1000 if the market moves in your favour.
- In the opposite case, you multiply your losses by 1000. It is therefore a handy tool that can prove as effective as it is dangerous.
For example, if you have €100 in your account and use 1000x leverage, you will have opened a position worth €100,000, such as one forex lot.
If you look at leverage from the point of view of your wallet, you will see it more as a divider. Leverage divides the price you have to pay to open a position. For example, for a forex position costing €100,000, you would have to pay €100,000 to be allowed to trade it. But with 1000x leverage, you divide the cost of taking the position by 1000.
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The cost of such a position with 1000x leverage is €100. You have divided the required margin by 1000.
Among traders, we usually say that your margin is 0.1%, because you pay 0.1% of €100,000.
Quick calculation: 0.1% x 100,000 = 100.
Finally, there is another way of looking at leverage: from the broker’s point of view! That’s right, we often forget about it — except when margin calls have to be paid.
It is thanks to the broker that you can trade with leverage. And it is thanks to certain brokers that you can reach leverage of 1000, while others do not go beyond 100. Why? Because the broker lends you the money needed for leverage. And if you cannot cover your losses, that is a problem for the broker. Losses grow larger and larger with high leverage. Keep this in mind! Badly used leverage multiplies the risks you take and multiplies the size of your losses.
1000x Leverage Is a Loan
For the broker, then, leverage is a loan. It lends you the money you are missing to open your position. Let’s go back to the €100 example. When you open a forex position with €100 in your account and leverage of 1000, it is not virtual.
- You do not have magic money that lets you take a position 1000 times larger than your real financing capacity.
- You really are opening a position worth €100,000 — it is important to understand that. Except that you pay €100 of margin and the broker advances you €99,900.
- So you have borrowed €99,900 with a contribution of €100. By comparison, think of a mortgage. In general, to get 95% financing, you have to put down at least €50,000, prepare a business plan, hand over your payslips…
Leverage does not require any of these things. That is convenient for trading, but these checks do not exist just to add friction to the property market. They protect investors and stop unscrupulous bankers making fortunes at the expense of ordinary people.
A Loan Commits You
So beware of brokers that offer huge leverage too easily! Remember that the more checks there are, the more trustworthy the broker you are dealing with.
When you use 1000x leverage, your broker lends you 99.9% of the position’s price. That is a considerable loan, and of course you have to pay management fees, hedging fees, endless fees. It is these fees that underpin brokers’ business models, much more than trading gains or losses. So fees are a factor you should always watch when choosing a broker and trading.
What Is the Difference Between 100x, 500x and 1000x Leverage?
Leverage of 100 could be described as low leverage. It is the biggest of the small levels of leverage.
1:100 leverage is just about enough to trade forex, but it is already too high for volatile markets such as stocks or commodities. That said, the main advantage of leverage like 1:100 is that it lets you diversify your investments. With 100x leverage, you are not going to take €100,000 positions. But you can take hundreds of positions in shares at €30 each, for example, and so build a diversified investment portfolio.
What is the advantage of a diversified investment? It protects you against market moves. Traders very often have a position liquidated. It is normal not to have a 100% success rate in trading — that is just maths. But what is not normal is having your account liquidated. If that happens, it means you do not have enough margin to stay solvent during a market correction.
Two things can give you the margin you need never to have your trading account liquidated. Either you always keep a large part of your capital in euros in your account, which backs your open positions.
Gains Can Increase Your Margin
Or you have other positions, on other assets, that are winning. And the gains on these positions can cover the losses on other positions. It is a balancing act reserved for the greatest acrobats — the ones who make money trading.
500x leverage is already heavier artillery. With such leverage, you start doing some damage. If you want to trade the forex market, you will only have to pay €200 to open a €100,000 order. That means that with a €1,000 balance, you can open 5 forex positions. That is already a nice portfolio at that rate. But for those who want to go faster, higher and further, there are higher levels.
1000x leverage is the atomic bomb. With 1000x leverage you can diversify your portfolio to the full, but that is not all.
You can also open positions worth tens or even hundreds of thousands of euros. In trading, there are many positions that cost too much to be traded by amateurs or retail investors. This is the case, for example, with commodities, oil or Forex. These markets are special. The price of oil is often shown per litre when you look at stock market charts.
Forex, a Market for Giants
But very often, when you want to trade it, you have to go through lots worth tens of thousands of euros.
The reason is simple: the players in this market are large investment funds and banks that handle several hundred billion dollars a day. If banks bothered trading oil by the litre, they would never get their business done. These financial giants therefore have to deal in huge lots, grouping assets of a size large enough to be worthwhile for them.
But as a retail investor arriving on this market, you do not necessarily have the firepower of an investment fund.
So this is a barrier that keeps small investors out of the big investors’ market. Leverage on the scale of 1000x gives this power back to small investors.
But as Marlène Schiappa says, with great power comes great responsibility.
1000x leverage should be used by people who understand how trading and diversification work. 1000x leverage is a weapon that can be very dangerous if you use it without understanding how it works, because it can turn against you. We recommend using 1:1000 leverage as part of diversification strategies, together with a money management strategy. Without these two assets, your trading adventure risks turning into a human sacrifice — and yes, I am talking about you.
Why Does 1000x Leverage Allow You to Diversify?
Why can 1000x leverage be used in different ways? It is very handy for diversifying your capital. You will invest in many small stocks and so open a very large number of positions. It is a way of reducing the volatility of stocks while using leverage to increase their volatility.
Contradictory? The trick is that by reducing volatility through diversification, you limit the negative impact it can have on your account balance. But by increasing the volatility of the stocks once they are diversified, you maximise gains. It is therefore protection against losses and insurance for gains.
Bear in mind that you will pay fees on every position you open. So you need to calculate whether the number of positions ends up generating excessive fees — so many fees that they could make you lose money, even if your positions were winning. You therefore have to find the right balance between a large number of positions and winning trades. A second use of 1000x leverage can be to access Forex lots without having thousands of euros to put in your trading account.
What Leverage Is Used For
Diversification: leverage can be used to diversify. But for most traders, the main use of leverage is to increase the volatility of a position. With 1000x leverage, you multiply your capital by 1000. In fact, you multiply your gains and your losses by 1000. But what you are really doing is multiplying the volatility of your positions by 1000. For example, if you open a Forex position with €100, you have not made a 1% gain on €100; you will make a 1% gain on €100,000, the real value of the position.
- 1% of €100,000 equals €1,000
- if you gain 1% on a €100,000 position, that represents a 1,000% gain on your €100 position
- so you have made a gain of 1% x 1000
The Risks of 1000x Leverage
Bigger losses: it may sound like a fine promise, and you may already picture yourself making €1,000 with every €100 you own. That is true, but you can also lose €1,000 on every position you open. It cuts both ways.
If you have opened a €100,000 forex position with only €100 of margin, you will face a margin call with a negative move of 0.1%. That is a very small move, so it is a move that could quite probably happen. Such leverage must be used with solid capital to cover yourself.
Liquidation in Trading: The Trader’s Nightmare
When you trade with leverage, you expose yourself to the risk of liquidation, and that is even more true with 1000x leverage.
Liquidation is when your margin is lower than the money you have lost.
- Basically, you open a €100,000 position with €100 of margin.
- This margin is your contribution, but it is also a guarantee.
- It is an amount you can pay if your trade goes against you. But €100 is very little.
So if your position loses you more than €100, you technically have no money left to cover the losses. Your position will be liquidated, meaning the broker closes the trade and tells you: “That’s it, we’re cutting our losses here, you owe me this much money.”
At that point, you have two options.
- Either you take your losses, and if they exceed your margin, you have to pay off a debt to your broker.
- Or you want to carry on.
In that case, you add margin to stay solvent and keep the position open longer. Because the market moves both ways, whether it is trending or not. And sometimes a position is in the red for a few moments before becoming very profitable. So it is a bet on a bet — a bit of “double or nothing”.
Margin Calls and Leverage
When you add margin, this is called a margin call. Your broker calls you, or sends you an email, to tell you that you have exceeded your margin. Since we are in the scenario where you want to keep your position open, you will dip into your savings and fund your trading account. A margin call can also mean game over, because sometimes you simply have no money left.
Losing More Than Your Stake
With leveraged trading, also called margin trading, you can make large sums of money very quickly. But you can also lose much more than you actually have. Once again, you are betting on €100,000 lots, even if it feels like you are only putting in €100. A €100,000 forex lot with 1% moves means €1,000. So if you had the idea of opening a forex position with leverage of 100, you could lose 10 times your stake in a single morning. And the broker will not wipe the slate clean because you are a novice. It is more the type to sell your debt to a debt collection agency.
The Advantages of 1000x Leverage
Diversifying is a way of countering the risks of trading. We have named them: mainly the risk of losing more than your stake and the risk of a margin call.
With leverage, you can open positions on correlated assets — that is, assets whose prices move in opposite directions. How does it work? Imagine you want to invest in stocks. You know the market is bullish, but the health crisis is looming. So you put 50% of your capital in stocks and the rest in precious metals such as gold.
Historically, gold rises when stock markets fall. It is therefore insurance against a stock market crash. Since your trading account nets your winning and losing positions, you will avoid a margin call if half of your portfolio shows gains that exceed the losses.
Diversifying also means splitting your capital into around ten small investments in different niches and asset classes. The problem with this practice is that by dividing your capital, you also divide the potential gains each position will bring you.
Trading with Leverage: An Edge Over Other Traders
It is in this context that leverage is an asset for traders who rely on diversification.
With 1000x leverage, not only will your positions no longer be “small” positions, but they will also have a real value greater than your entire capital.
If you have divided your capital by 10 and use 1000x leverage on each position, you will in reality have 0.1 * 1000 = 100 times your capital on each position.
You can also fine-tune the leverage you want to use. For example, 100x leverage on stock market positions and 500x leverage on precious metals. That way, you can balance safety, gains and risk-taking. This is where traders start putting complex strategies in place. To manage this kind of diversification as well as possible, being a good trader is not enough. You need a good knowledge of the assets you use and the markets you trade. Successfully diversifying a large portfolio with leverage takes real groundwork.
Growing Your Capital Exponentially
If you are content to wait for the €100 your grandmother gave you on her deathbed to turn into a million euros, you will have to wait a very long time.
The advantage of leverage is that it lets you play in the big leagues when you are a small player. It is at your own risk. You could just as easily fall flat on your face and kiss your fortune goodbye.
But this chance to play with the big players and earn what the big players earn can be your springboard to start building very solid financial capital.
With 1000x leverage, you can win more than your stake. You can really make a lot of money. You are lent money so that you can make a lot of money. If all goes well, it is paradise. It is as if you went to the casino and someone lent you money to bet on roulette. In return, you only owe them a low interest rate. As long as your lucky number comes up, everything is fine.
But if you lose your stake, that is a problem. Not only will you lose your capital, you will also end up in debt for amounts you can never repay. That is why trading has mechanisms such as margin and margin calls, to prevent people being ruined and to keep brokers themselves out of difficult situations.
Final Word
1000x leverage is probably the most powerful leverage ever created by humankind. In the wrong hands, it can cause famine, despair and death. But when the right person holds this power, they can change the course of their own life. Leverage allows your trading account, and therefore your money, to grow exponentially.
If 1000x leverage is still not clear enough for you, now is the time to ask your question in the comments! We will be very happy to answer.