Traders tend to confuse the concept of margin and leveraging. This is one of the aspects in forex trading that confuses many traders and also to include the new traders. forex trading is very complex and beginners have to understand the basics before they jump into the market. 

 In this section we will look at the margin and leveraging and it will be outlined in brief detail so that the beginners and other traders will understand its meaning. 

 Generally, trading with borrowed money is the most common term that is used in several articles online but they do not explain in detail the correct meaning hence they leave so many people confused. How do you get a broker to lend you money, and how is it done? These are some of the many questions that you will ask yourself regarding margin and leveraging. 

 Traders who leverage forex make the most amount of money with the least amount of capital. Currency speculators get the benefit of very high liquidity combined with very low margin requirements when they leverage forex transactions. Some accounts require a margin as little as 0.5% of the borrowed amount, a staggering 200:1 ratio. For those not familiar with this concept, this means that an investor with ten thousand dollars in his account could purchase two million dollars worth of foreign currency. 

 Margin: This is your money. It is the total amount of money that you give to your dealer/broker as an assurance that you are able to cover loses if your trade goes against your way. A trade can go against your way and you can lose all your money. A protective stop loss would have to be used when trading on margin so that you do not lose all your money when your trade goes against you. 

 (Stop loss: is the total risk tolerance that you are able to incur on a trade. All traders setup their own stop losses and this would be the total amount that they would want to incur when a trade goes against their way.) 

 Many traders often confuse themselves thinking that they also get to trade with their money at which this is not true. The broker will always give you the money to trade with and your money (margin) would be used as your collateral security. 

 Leveraging: This is the total amount that a dealer or broker will lend you. The total amount that you will be given will all depend on your margin. Each dealer or broker has got their own leverages and these are given as ratios. The most common leverage is 1:100 and some brokers can even offer you leverages of up to 1:400. As a new trader you should be very careful with brokers who offer very high leverages because they can erode your investment before you would have started making profits. 

 For example, if a broker is offering you a leverage of 1:100 this would mean that if you want to enter a trade when you have US$1,000 in your account your dealer will give you US$100,000 to trade with. 

 The other question that would arise is “what if you lose the money you have borrowed when trading?” The answer is that you will never lose the amount that the dealer or broker has given you. Without setting a stop loss an automatic stop loss will be set by your dealer and s/he will set it to $99, 500. Therefore, when a trade goes against you, it will never go below the limit of $99,500. Hence, the dealer never loses. They will always make a profit or breakeven. 

 With leveraging you will be able to enter so many trades due to the fact that there are two accounts that you are able to open. You can decide to have a full lot account at which you will make use of all the many that your dealer gives you when making a single trade or you can have a flexible lot account at which you will be able to partition your borrowed money and decide which trades you wish to enter. Your borrowed money is often depicted as lots and when trading you will be placing positions. 

 For example, your lot account would be having 100 000 lots and you enter positions using lots. 

 It is also advisable to use 1:100 leverage in forex trading to avoid higher risk. If you are required to deposit 1% of the total transaction value as margin and you intend one mini lot of USD/CHF which is equivalent to US$10,000 the margin required would be US$100. Thus, your margin-based leverage will be 100:1 (10,000:100). 

 Margin-based leverage in ratio Meaning 

 1. 1:400 That means for every 1 lot/dollar you want to trade with, your broker will give you additional 400 lot
 2. 1:200 That means for every 1 lot/dollar you want to trade with, your broker will give you additional 200 lot
 3. 1:100 That means for every 1 lot/dollar you want to trade with, your broker will give you additional 100 lot 

 You can make decent profits and losses during trading when you monitor currency movements in pips which is magnified through the use of leverage. When you trade with a big amount by using higher leverage, a small in the price of currency can result in significant profits or losses. 

 Conclusion: 

 Margin is total amount of money that you give to your dealer as assurance of covering loses when a trade goes against your way. 

 Leverage is the total amount of money that you are given by a broker to enter several positions in any of the forex market currency pairs. 

 You know here that Leverage is not what brokers allow you to use, it is what you choose to use. So, do not be greedy. Do not choose the highest leverage. Highest leverage will only hurt you and it is something that can not do you any good. Any leverage above 100:1 is not necessary. Do not choose 200:1; 400:1 or 500:1. Using high leverage will only wipe out your trading account faster than you can imagine. You should always have it in mind that your first assignment as a trader is to protect your capital before going for the profits. 

 Finally, you should know that Leverage is calculated by dividing your capital into the amount of leverage or loan you want to collect and express it in ratio. 

 Note: You will never get to trade with your money. The broker will give you his money to trade with.