DEFINITION
Leverage
The ratio of position size to account capital. A 1:100 leverage means a $1,000 account can control $100,000 of currency. Prop firms typically cap leverage at 1:30 to 1:100.
Example
A $100K account with 1:100 leverage can control $10M of EUR/USD. One standard lot ($100K nominal) requires only $1,000 margin.
Related terms
Lot Size
The standardized volume unit for forex trades. A standard lot = 100,000 units. Mini lot = 10,000. Micro lot = 1,000. Lot size multiplied by pip value determines dollar risk per pip.
Pip
The smallest standard price movement in a forex pair. For most pairs, 1 pip = 0.0001 (or 0.01 for JPY pairs). Position size × pip value = dollar P&L per pip move.
Position Sizing
The process of determining how many units, lots, or contracts to trade based on account size, risk per trade, and stop loss distance. Proper position sizing is the foundation of risk management.
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