The question of what 100x or 1:100 leverage in stocks, crypto, or forex is common and I thought I would break down this query in an easy-to-understand guide for both investors and traders.
Most novice traders are familiar with the term 100x or 1:100 leverage but they are not so sure about the meaning.
Since many platforms and stock brokers offer very high leverage trading I thought it would be good to shine some light on this topic and clarify some doubts that might circle in the financial community.
The reason why brokers provide leverage is mainly to increase their own revenue but also to promote more tradable markets and short selling with leverage which traders can use to profit while the price of an asset is falling.
In my early days of trading with leverage, I was fascinated by how much capital I could raise by increasing my leverage on my forex broker. I used to trade the EUR/USD pair with 1:100 leverage or more sometimes.
For a beginner trader, this turned out to be a very costly mistake as the market quickly gave me notice of how risky it was. But of course, this was after I made my first big gain of nearly $1500 in one day of leverage forex trading. I was hooked but at the same time scared of losing more money.
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What does 100x leverage mean?
In essence, with 1:100 leverage, you borrow 100 times the money you have in your investment account from your trading broker or exchange to open bigger positions to make a larger profit.
For example, if you have $1000 deposited in your account, a ratio of 1:100 will give you a maximum position size of $100.000.
The simple calculation is written below.
$1000 x 100 = $100.000
A good leverage ratio for $1000 depends on a lot of factors such as your trading strategy, your overall knowledge of the market, and your skills as a trader.
You can also use our crypto position size calculator to calculate your position size.
The extra buying power that comes is automatically added to your position size and you don’t have to worry about losing it to the market since your margin capital will act as risk on all leveraged positions.
With a ratio of 100x, you only need to put down a 1% margin for each position that you open in the forex, stock, or crypto market. Let’s say that you want to open a position size of $15.000. At a margin requirement of 1%, you only have to put down $150 to be able to open this position.
This means that all your profits will be amplified 100 times along with your losses. What happens when you lose money on leverage is that your margin balance takes a bigger hit much faster.
Since your downside should always be protected with a stop-loss you can pretty much keep your risk limited to a maximum loss of your choice while you keep the possible upside unlimited.
It is possible to make windfall profits with this kind of margin and some of my biggest short-term winners have been made like this.
An example of how the profit works with 1:100 margin is the following. Let’s say that you deposit $250 in your trading account and open a position worth $25.000.
In this trade, you are correct about the market’s direction and score a 5% profit. This profit would translate into $1250, which is a 5 times increase in your total account. That is the real power of leveraging your account 100x.
1:100 margin is available in most asset classes but it’s not always the best choice to go with a high margin approach if you are a beginner.
Learn how to choose ratio if you are a beginner and find out the leverage ratios for crypto if you are into cryptocurrency trading first.
How to use it in the live markets
The process of opening positions like this is straightforward; anyone can open a leveraged trading account today and start trading. This powerful tool is accessible through most brokers that are somewhat modern and you should have no trouble finding a reputable platform among the top 20 most popular brokers.
Here is a step-by-step list of how it’s done:
- First, find a good broker and sign up.
- Make a deposit of your choice.
- Choose the market you want to trade.
- Enter the trading platform and select your leverage.
- Now, add your stop-loss and take-profit order.
- Open the position.
Well done. You have now opened a position that is 100 times larger than your total account balance. Keep in mind to track your open position and use proper risk management.
Using leverage in long-term investing is good but not at this ratio, remember that.
Things to consider
In this part, I’m going to list some smart things that you can consider to swing the probabilities in your favor while trading with 1:100 leverage. After having traded many markets in different kinds of scenarios I have picked up very good habits and removed some very bad habits from my strategies. Once you learn to think like a professional trader you will make better decisions and hopefully make better returns. Below are some of my best tips.
- Progressively increase position size – While it’s true that you can increase your positions 100 times it doesn’t mean that you should use your entire stake on the first entry. Try the market first and wait until it gives you the green light to go forward and then increase your size.
- Use your best setup – I recommend that you pull out your best tools from your trading belt because it can be very challenging in the beginning, especially if it’s your first time leveraging up.
- Your order types are key – You need to use a stop-loss and a take-profit order, that is boilerplate, anything more than that is for you to choose. Try to the best of your abilities to automate your strategy to remove as many human errors as possible.
- Choose a maximum risk – Before you start, set a maximum dollar amount that you are willing to lose on each position. This can be $2, $50, or $500 but the most important thing is to never break this number.
- Select a contract that suits you – After you learn all the leveraged contracts you should select a contract that suits your investment style best. Some prefer options and futures with an expiration date while others prefer perpetual swaps that will keep running until you cancel out the trade yourself.
What other traders ask
Futures platforms and derivatives exchanges are some of the easiest ways to go about and I would recommend BitYard if you are into crypto and Skilling if you are a fan of CFD platforms.
You need to be very careful with your risk and make sure to use a stop-loss order every time you enter the market. This type of trading is best suited for short-term day trading since holding the position overnight will cost you a one-day management fee. This fee varies from platform to platform but it’s usually around 0.03% of the total position size.
No, 100x is the same as 100 times, whereas 100% is only an increase of one time, or double.
To trade Bitcoin or Crypto with 100x leverage means that you are able to open positions that are 100 times bigger than normal. For example, if you have an account of $500 you would be able to open a position worth $500 x 100 = $50,000.
Where can you find this kind of ratios?
There are countless forex brokers, leveraged CFD brokers, and crypto exchanges that offer 100x leverage for retail traders. Some of the most popular platforms for forex are Avatrade, Axi, and Skilling.
One of our recommended crypto leverage platforms is BYDFi where you will have access to 200 times borrowed money directly after signing up.
Trade 1:100 leverage here:
- BYDFi
- Binance
- Skilling
- Avatrade
- PrimeXBT
The most important thing that you should check before starting out is that the platform or broker you choose is regulated by the local government. Over the years many bad actors have ripped off inexperienced traders and their capital due to quick losses. To stay safe in this market I highly suggest that you stay away from off-shore brokers and unregulated platforms.
Pros and Cons
To complete this tutorial I would like to mention some of the biggest benefits and drawbacks so you can choose for yourself whether it seems like a good idea to increase your position sizes to this level. I must say that some traders and investors are better off using a lower ratio since it can be very difficult to handle market volatility. However, those of you who feel comfortable might enjoy larger profits than you have ever seen before.
Benefits
- Amplified profits – This is probably the main reason why you would increase your position sizes. It is possible to make thousands of dollars per day if you can control your risk and use a proper leverage strategy. Most traders who use this kind of ratio are day traders that open and close several trades per day to beat the markets and increase the account size.
- More flexibility – You can also use a ratio of 1:100 to spread out your capital on several markets. This gives you more flexibility, better opportunities, and the option to use several strategies at the same time.
- Spread out risk – If you do what I wrote in the previous point you can reduce your risk by diversifying your portfolio over several markets that are not correlated with each other. For example, going long and short in two different markets is the optimal diversification as a leveraged day trader.
- Trade big with a small account – Most new traders start with a few hundred dollars or euros and it’s going to be very difficult to make profits that pay for your bills with that kind of account size. With a leveraged account, you can make the same kind of profits as a professional trader for an added risk factor.
Drawbacks
- Difficult to control – It can be difficult for a new trader to handle the large up-and-down swings that your account will take once the market starts moving. If you are used to losing a few dollars here and there you are going to have to get used to seeing your account down a few hundred dollars depending on how much you deposit.
- Lose big and fast – If you don’t use the proper risk management and don’t know how this style of trading works it is possible that you lose your whole account in a very short time. Many new traders blow up their accounts before they know what hit them. This is the name of the game but you should be aware of it.
- Bigger trade commissions – When you borrow money to increase your position size, the commission size grows as well. If you are used to paying a few cents per trade you should now get used to paying a few dollars or euros for each position you open and close.
Final thoughts
In this guide, I have explained the meaning of 100x margin in forex, stocks, and crypto trading. The power of a leveraged account can make you “rich” overnight or throw you overboard in less than a few minutes. I can’t tell that this style of investing is for everyone but for those who have the stomach to bear the volatility you are in for something interesting and possibly very profitable.
I want to point out that choosing a leveraged broker is very important and you should try to avoid any platform that is not regulated by a local government. Read the pros and cons part of this tutorial to see if you are up for the taste of using 100 times borrowed money. As a trader, it is your job to find opportunities and there is no better way to capture a winning trade than with 1:100 leverage.
When comparing forex vs crypto vs stocks trading, the highest ratios are going to be found in forex without any doubt!
