Leverage is quite misunderstood a lot these days.
This is based on my money management. Keeping risk 2% per trade and max Drawdown 10% which is that you stop trading after 5 consecutive losses
Well consider this. To take a position you need a volume of units worth of 3,00,000 margin and net profit made 30,000 after trading. Essentially you made 30,000/3,00,000*100 = 10%
Now assuming you made same 30,000 profit and you have leverage 1:500 and want to trade the same volume of units worth of 3,00,000 then you only need to have
3,00,000/500 = 600 as margin.
Essentially you are using 600 leveraged margin to trade a total volume margin worth of 3,00,000.
Let’s calculate return now.
30,000(return profit )/ 600 (leveraged principal ) * 100 = 5000% profit.
This is what is leverage.
But what is the reality ?
It blinds people to put a stop loss. People who use leverage themselves never actually know what volume they are trading.
So if you have 2% risk per trade with same setup of margin required 3,00,000 then you need to have :-
3,00,000 *2% = 6,000 per trade. You need to have 6,000 in hand to enter a position and For 5 trades 6,000 * 5 = 30,000.
So even if you can take position with 600 using leverage, you still need to have 30,000 in account to trade properly .