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Beginners Forex Education Forex Basics

Advantages of Forex Trading – Leverage, Liquidity, and Volatility

There are a lot of advantages to trading forex over some of the other methods of trading such as stocks, some of these advantages are the leverage that you can use, the liquidity in the markets, and the volatility that the markets can give. Each of these gives you a huge advantage as a trader and can help boost your potential earnings. Of course, they can also add a bit of risk to your trading too. We are going to be looking at some of the advantages of trading forex today.

Leverage

The first advantage that we are going to be looking at is leverage, but before we work out why it is good, let’s get a little understanding of what it actually is. Leverage basically allows you to borrow the money that is needed to make a trade from your brokers. It allows you to place trades that are far larger than your balance would otherwise allow you to make, this is one of the reasons why it is so sought after. So if we take a simple example, let’s imagine that you have a balance of just $100, you would not be able to place much with a 1:1 leverage on the account, so we go for a 100:1 account. This means that for every $1 that we have in our account, the broker will top it up to $100, so will add $99 themselves. So that $100 account is now acting like a $10,000 account, allowing you to make far more trades. Of course, some brokers go higher, at 500:1, 1000:1, or even 2000:1, the latter two are a little too high and the 500:1 seems to be the sweet spot.

So that is what leverage is, but how is it helpful to us as traders and why is it one of the major advantages of forex trading? To put things simply, leverage allows us to trade a lot more and thus make a lot more profits. After all, why would you trade with an account with just $100 in it when you could be trading the equivalent of a $10,000 account. You should bear in mind, that while the brokers are giving you this money to trade with, it is not yours to keep, you will have to return it, and should you lose, you may have to pay it back, although most brokers now offer negative balance protection to help this. The main advantage is that it lets you trade with more and so they can earn more in profits. Larger trades mean larger profits and that is the main advantage to it. It does come with risks, but with proper risk management it is very manageable, so do not be afraid of taking larger leverage, just bear in mind that it does come with some risks.

Liquidity

The forex markets are one of the most liquid markets in the world, this simply means that there is a lot of money available to be traded at any one time. Liquidity is basically defined as the ability for a currency or asset to be traded on demand. As the forex markets are so liquid, this basically means that you are able to trade at any given time whenever you want, and the more liquid that a currency pair is, the lower the spread cost that comes with it. With high levels of liquidity also comes a certain level of calm, the markets will not jump up and down as violently when there is a lot of liquidity in the markets, making it a slightly safer investment opportunity. While the forex markets as a whole are incredibly liquid, there are some pairs that are a little less liquid and so the spreads may be higher and there may be larger jumps in those currency pairs.

Some of the higher liquidity pairs include EURUSD, GBPUSD, USDJPY, EURGBP, AUDUSD, USDCAD, USDCHF, and NZDUSD. Some of the lower liquidity pairs include the exotic pairs such as PLNJPPY, these sorts of currency pairs cannot be purchased in huge lot sizes due to the lack of liquidity, however, with smaller trade sizes they can offer large jumps and large potential profits and losses.

Volatility

Volatility within the forex markets is basically a measure of the frequency and the size of changes to a currency’s value. If something is described as having high volatility, this simply means that that currency or currency pair has frequent movements within its market price and those movements can be sharp and large, whereas a currency that is considered to have lower volatility will simply move up and down at a more controlled pace and those movements will not be as sudden and the price is far less likely to simply jump up and down.

Both high and low volatility pairs can offer us some advantages as a trader, if we take high volatility, the profit potential of these pairs is far higher than low volatility pairs. Imply due to the fact that the markets will be moving a lot more and when they do move, they move a much larger distance. So a single trade on a highly volatile pair has a lot higher profit potential in a shorter period of time than one on a low volatile pair. Having said that, there are advantages to a low volatility pair too, they are much safer to trade, you do not need to worry about any sudden jumps in the wrong direction and they are often considered as being a lot easier to predict. The slow movements allow you to constantly analyze the markets and changing conditions, allowing you to get in and out at a much more comfortable level. Which one works for you the best will simply come down to your own preferences and your own trading style.

So that is Leverage, Liquidity, and Volatility, all three offer you very different advantages to trading forex, and combined they are the reason why forex trading is becoming so popular for both professionals and retail traders. Ensure that you get an understanding of how each one works, this will enable you to much better maintain your account and to understand the risks and advantages that you are getting from your account and the markets that you are trading. Do not be afraid to experiment with different pairs that offer different volatility and liquidity, part of being a good trader is trying out new ways to make a profit.

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Forex Basics

What Are the Advantages of 1:1 Leverage in Forex Trading?

When it comes to leverage, you often see larger numbers being advertised, brokers trying to entice in new traders and new webers with the promise of sky-high leverage. In fact, the new standard of leverage being given by brokers these days is around the 500:1 level which would have been unheard of a few years ago. Some people, however, still swear by simply not using leverage, to use an account with a 1:1 leverage which basically means that you will be using your own money and only our own money, not borrowing from the broker at all. This does of course come with some advantages, advantages that we will be looking at in this article, so let’s jump in and see what the advantages of trading with a leverage of 1:1 are.

What Is Leverage? 

Before we do that though, a very brief overview of what leverage actually is. Leverage is basically a way of using more money to trade with than you have in your account. If you have a leverage of 100:1, it would basically mean that for every $1 in your account, your broker will let you trade with $100, they would simply lend you the other $99 in order for you to trade. So an account balance of $1,000 would have the trading power of a $100,000 account. This enables you to place larger trades giving you larger profit potential, but it will also increase the risk that you are putting on your balance with the larger trade sizes.

So there are certainly advantages to trading with a higher leverage, especially the profits that we are all after. There are however advantages to keeping your leverage low, so let’s take a look at what they are.

Advantages of Leverage

One of the main advantages to keeping your leverage low is the fact that it enables you to better manage the risk on your account and can allow you to survive for a longer period of time during a period of lots of losses. If we have a trading power of $100,000, this would mean that for an account with a leverage of 100:1 they will only need $1,000, however for an account with a leverage of 1:1, they would need the full $100,000, sounds like a disadvantage needing that much, which is true, but hear us out.

When we put on a trade with an account with the leverage, and the value of the trade drops $1,000, you technically still have $99,000 right? Wrong, due to the leverages, you were able to place those trades, but the $1,000 drop will have completely blown your account. With the leverage at 1:1 however, your account would be set at $99,000, with just the $1,000 lost. So it basically allows you to survive larger movements and consecutive losses that would have otherwise blown a leveraged account.

Transparency

There is also a lot more transparency when it comes to a leverage of 1:1, what you see in your account is what you have and what you have available to trade with. It can be quite confusing when trading with leverage, working out what your margin levels are, working out what your trading power is, and so forth. With the 1:1 leverage, you know exactly what there is and you know exactly what size trades you are able to make. This level of control and transparency can make it far easier to analyse your own account and to work out your risk management plans as well as your risk to reward ratio.

Balancing Losses

Trading with a low leverage keeps losses in line with your account balance, we mentioned before the heavy losses that can come from leveraged accounts, we just wanted to confirm this again. When we trade with low leverage, your losses will be in line with your account, you will be in a much better position to manage those losses and to be able to take a number of them at a time, not putting huge dents into your account. You also do not have any liability when not using leverage, many brokers will charge you a form of interest for using their leverage, so holding trades or simply placing them can mean that you have to incur a charge from your broker. Having a 1:1 leverage will mean that you are not borrowing any money and so do not have to pay the interest for doing so, another advantage and a day to save a little bit of your capital.

Impact on Margin Calls

Trading with a 1:1 leverage also helps you to avoid those pesky margin calls, these are levels set by your broker that are to do with your margin levels. When your margin level falls below the set amount then the broker will basically close all of your trades, this is done to protect you and to prevent you from going into negative balance, something that used to happen quite a lot in the past with leveraged trading. Not having to worry as much about margin calls can take a level of stress out of your trading. It will be very hard to get a margin call when trading on a 1:1 account simply because you are not borrowing any money to trade, what you see is what you have, and so the margin requirements are not as relevant.

Impact on Mental Health

Trading at a low leverage can also be beneficial to your mental health. Trading can be stressful, and when trading with leverage you are adding to that risk and the stress that you will be put under. You are risking more per trade and so each trade will give you additional stresses as you are risking your own money. With a 1:1 account, you are risking a limited amount and so the risks are lower, and so is the stress that you are putting yourself under. If you are a risk-averse person, then low leverage will be perfect for you.

So those are some of the advantages of trading with a 1:1 leverage, we are sure that there are some others out there there are of course some disadvantages too, as there is with any form of trading or leverage amount. You do need a lot of capital to begin with and it will take longer to make decent profits, but you need to weigh up the pros and cons, there are certainly a lot of advantages to trading low leverage, especially if you are not a fan of risk.

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Forex Money Management

Effective Strategies For Financial Leverage That You Can Use Starting Today

We’ve already talked about leverage in other articles, and we’ve given a very precise explanation of what it is and how it works. Today begins the most interesting, Is the leverage good? Is it bad? Is it true that it ruins all traders? We’re going to find out what’s behind all the doubts and myths about financial leverage.

To do so, I will cite the phrases and opinions that I have been able to collect from the Internet.

“Leverage multiplies your losses.”

This phrase is not true, the 1:100 leverage allows me to operate as if I had 100 times more capital than I have, but this does not imply that I use all my credit to gamble on the stock market.

Effectively if I use all my buying potential in a single trade and I lose it I will be ruined, but never (go or not leveraged) you must play more than 1-2% of your trading account and only in a trade, if you are a daytrader then 1% is already quite risky to my understanding.

For example, I have created a 1:100 leveraged $1000 account (I have credit up to $100,000) but as a sensible trader, I don’t want to gamble more than 1% on my next trade. 1000$ * 1% = 10€

On Forex accounts you can play from 1 micro lot, then the value of each pip is 0.10$. So $10/ $0.1 would allow me to put the Stop Loss up to 100 pips away, but from here I should accept losses greater than 1%. As you can see a daytrader with a Stop Loss at about 30 pips can play 0.3% of his account and at the same time be leveraged 100 times.

“Leverage is what will make you rich.”

NO, of course not. Leverage is a very useful way to enter the stock market with little capital and be able to diversify your account better but to gain the important thing is your constancy, practice, constructive self-criticism, and positivity in front of the market.

“People without leverage work for those who do have leverage.”

I don’t think so, people without leverage look for the long term and they help themselves from the liquidity that we provide intraday and short-term traders to enter the market with better conditions and with more security. Leveraged traders tend to focus on the long term and rarely affect leverage.

“People with leverage work for those who are not.”

In the sense that short-term traders give liquidity to the market, yes, I have no doubt. But in a “we earn the money they lose” sense of course not! If Buffet had leveraged 3 times, today it wouldn’t be 3 times richer; it would be ruined. And the phrase is right. According to Warren himself:

“Unless you can see your stock drop 50% without causing a panic attack, you shouldn’t invest in the stock market.”

Obviously, no one who thinks like that should use leverage, if you don’t know how far you are going to take the losses you should seriously consider using leverage. On the other hand, to a short-term investor, the leverage comes from fable, in fact, there are professional traders who are dedicated to looking for commissions in exchange for giving liquidity to the market (the so-called rebates). These traders charge for every trade they open and usually look for 0 to 2 market ticks, no more. The leverage they use can reach 1:1000 without problems.

Well-used leverage means that a person with knowledge, work, and understanding of markets can come up with a very large portfolio that would otherwise be impossible. Personally, I want to highlight an interesting phrase that I have read:

“It’s not the bullet that’s dangerous, but the speed it’s carrying.”

In my humble opinion, this is not exactly so. The velocity of the bullet is not the key, it is the use you give it. If you’re a hunter who uses the bullet to feed the family, you’ll be using this speed to not die and still be alive. If you’re unconscious and you’ve never been taught to use a gun, you’re going to accidentally shoot yourself in the foot and complicate your life.

In trading the same happens, a bad trader is short and long term, the only difference is that in the short term you will take less time to make 100 trades and be out. In the long run, your agony can last 2-3 years and hopefully a bullish market can make you believe you’re good for a while… Then things like this happen…

“The problem with leverage isn’t speed, it’s how we use it.”

In summary, leverage can help you in the short term to operate in multiple markets at once without putting your personal economy at risk. You can diversify your portfolio better and have absolute control of risk. You can make interesting profits with much less capital and the same level of risk, but be careful, you need many hours of experience and rational use of leverage.

In the long run, leverage is only a good ally if you use a guaranteed Stop Loss and have a clear strategy. If you rely on buying and enduring (because of course, we all know that someday this will rise), then leverage will be your worst enemy.

From here on, everyone draws their own conclusions, we hope that with this article we have brought a little more light to leverage and that we have all taken a positive part of this debate.

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Forex Money Management

Financial Leverage and Its Importance in Trading

I’m sure you’ve heard of financial leverage, but knowing how important this concept is in trading and what it implies. Let’s get on with it!

What is Leverage?

When trading on Forex, the broker lends you money so you can trade for more than you have in your account. It’s like an accelerator, it makes the profits and losses in applying it can be greater. The greater the leverage you use will be your exposure in the market.

How does trading work?

If you trade $5,000 in your broker account to trade with a leverage level of 1:10, the margin required is $500. If you have a balance of $3,000 for this, you have $2,500 of available or free margin ($3,000 – $500) to do more trading.

Why is Forex leverage important?

Knowing the leverage you’re using will help you know what potential gains or losses you may have, what margin the broker requires for smooth trading, and how your money fluctuates in your account with each price variation.

New ESMA Regulation

Due to misuse and losses resulting from excessive leverage with CFDs, in 2018 ESMA (European Securities and Markets Authority) decided to limit it to a maximum of 1:30 per account for European customers. In a practical way this means that, if your account balance is $5,000, you will not be able to do operations worth more than $150,000.

A paragraph, if you do not know what CFDs are, are contracts for differences that is their translation of the acronym in English (Contract for Difference). When you trade in currencies and click on the broker tab to buy or sell you do it through CFDs, which is the instrument that allows us to access and exit the market and settle the position easily.

One of the great attractions of CFDs is leverage, especially in currencies where some brokers offer very high levels that have caused some people who are starting to lose a lot of money. Faced with this situation, ESMA decided to act and limit leverage to 1:30 for one year, although it has recently been extended and already seems an unlimited measure. This has generated quite a number of opinions against and in favour of this measure.

Anyway, I have to tell you that the many brokers have looked the other way and offer customers high leverage despite this measure. This is done by changing its headquarters outside Europe, creating another tax residence. The fact is that if you take a look on the Internet you will find intermediaries that offer up to levels of 1:500.

What is the best leverage in Forex?

The best leverage for trading is the minimum that allows you to achieve your goals. If it’s not necessary for you to leverage yourself, don’t, because that will make your risk less. Do you really think that most losing traders are because they don’t have a higher level of leverage?

You may think that since you have a small account, the trick is to leverage as much as possible, but in these years I have seen how many traders open small accounts that later go bankrupt, then open another. and thus entering a vicious circle.

1:30 leverage is more than acceptable. From here, if you have more, you can use it or not. Having leverage of 1:500 does not mean that you will be overexposed in the market or with an excessive level of risk, simply the broker will require you less margin and ready. The key is that you always have the maximum loss of each trade in money controlled and is manageable.

Margin call

At this point, you’ll think leverage is a bargain. You can make use of it in small accounts and if the operation goes well make a good part of the capital and if you leave bad lose what you have in the account. You know, lose a little, earn a lot. Right? No, because you should be very clear that the broker will normally close your operations when you run out of margin in the account (margin call) since it does not interest you to end up owing money to him. But be careful because if not, you can ask for the amount you lost if your account is negative because you do not have the obligation to do so. In other words, you are ultimately responsible. The margin call is the ‘over game’ of trading.

We go with an example, we have a balance in our account of 1,000 dollars and leverage of 1:30. We opened a purchase operation of 0.30 lots in EUR/USD (30,000 dollars in face value). Our margin required to make the trade is 900 dollars. We only have 100 dollars in our account and if the EUR/USD quotation drops the margin will decrease.

That is to say, of the 30,000 dollars of exposure that we have in the market, with only a little more than 0.3% we would be left without margin to face the losses and the broker (is not obliged) would close the operation to us. This is what we called margin call before. In this case, we would assume the loss, but if you take this to the extreme and you do not close the positions or an event occurs that makes the quotes move much in a short time (news, black swan, Brexit type events) the consequences can be worse.

Is leverage bad?

Let’s think a little bit in perspective, is salt really bad? No, as long as you don’t have a disease related to it and take a reasonable amount.

Is leverage bad? No, if you have it and it’s not too high. If you engage in excessive leverage to trade Forex, sooner or later you will end up with big losses. Even if you win at first, you’ll end up losing. Use leverage to get more with less and diversify for better results.

The broker industry sells it as a panacea for beginners, where they announce that you can make a lot of money with very little. As we have already seen this may be true, but what you are not usually told is the B side of the coin.

How to calculate the size of a Forex trade

If you’re starting out on Forex, don’t worry about pips and lots, it’s a lot easier than it looks. An example to look at, with starting data that we need to calculate how much we are going to trade for a reasonable level of risk.

  • Risk per operation: 1%
  • Stop loss: 50 pips
  • Account balance: $1000
  • Currency pair: EUR/USD

We first calculate our risk assumed in dollars: 1% of 1000 dollars, 10 dollars.

Since our stop loss is 50 pips, we will calculate the value of the pip.

$10/50 pips = $0.2/pip.

Now we only have to know how much we’re going to trade so that each pip is worth 0.2 dollars.

Size of our operation = 0.2 dollars/pip / 0.0001

(Pip size) = 2,000 dollars.

Now we know that to take a risk of 10 dollars with that level of stop at EUR/USD we have to open an operation of 2000 dollars, 0.02 lots, or 2 micro-lots.

I know you’re thinking this is all bullshit and that doing it every time you open an operation is impractical. And that’s why I do it, algorithmic trading and I recommend you do it too. No more excuses for not knowing what leverage you’re using and calculating the risk properly. On to success!

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Forex Money Management

Trader’s Guide to Choosing a Leverage Option

Leverage is one of the main benefits of Forex trading. Leverage is applied as borrowed funds from one’s brokerage, which allows one to increase their trading position. Your deposited amount (margin) would then be multiplied by the chosen leverage in order to make larger profits than what would originally be possible with one’s account balance.

Leverage also helps retail traders to finance their assets and many brokerages couldn’t afford to stay in business without it. If you wanted to trade $100,000 with a margin of 1%, you would only have to deposit $1,000 into your trading account. Leverage options often differ based on the brokerage, account type, and size of one’s account balance. Some regulators restrict the leverage to 1:30, while others allow traders to choose a leverage of up to 1:1000. 

Choosing a Leverage Option

You shouldn’t choose the highest leverage offered by your broker just because it is available. Oftentimes, leverage is referred to as a double-edged sword, as it can help one to achieve greater profits, or things can go the opposite way. If your trade goes in the wrong direction, leverage can amplify your losses. Good investors limit the leverage they’re using, in combination with strict stop orders and limit orders to have more control over potential losses.

Many brokers offer their highest leverages on Mini/Cent/Standard accounts, which are the most attractive to beginners due to lower deposit requirements. If you’re a beginner, be cautious with this, as it isn’t a great idea to start out with leverage like 1:200 or higher. Trading from a demo account could also be a great way to get a feeling of the leverage you’re most comfortable with. Our research has revealed that many successful investors prefer a leverage of 1:100. In the end, the choice comes down to personal preference and one’s trading style.  

Conclusion 

Leverage is an effective tool when used correctly, as it will allow smart traders to multiply their profits; however, traders always need to use caution and place stop and limit orders. Choosing leverage that is suitable for one’s skill level is another must, otherwise, beginners could quickly deplete their accounts. You’ll also need to keep margin requirements and the choices offered by your broker in mind, as these might affect your options. Once you’ve learned how to use leverage effectively, it will become a helpful tool in your trading arsenal.

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Beginners Forex Education Forex Money Management

What Exactly are Leverage and Margin?

If you plan to trade Forex, it is vitally important that you fully understand what leverage and margin are, as well as what impact they will have on your trading. Below, we’ll provide not only their definitions but also go into the best-laid plans for their usage.

What exactly is Leverage?

Leverage is the simple act of trading more than you actually have. If we think about it in real-life terms, you want to buy some apples, you currently have 1 banana to trade for it. If someone offered you leverage of 1:10, you would actually have 10 bananas to trade, you would put in 1, the broker would put in 9.

When we look at this in trading terms, if you have an account of $1,000, you put on a trade of $100 but the broker has offered you leverage of 1:100, this means that for your $100, you will actually be trading $10,000 worth of currency. You are putting in the $100, the broker is then putting in the other 99% which equates to $9,900.

While leverage enables you to put more money into the markets, it does not actually increase the value of each trade, a micro lot will always be 1,000 units, regardless as to whether there is a leverage of 1:100 or 1:500. So for leverage of 1:100, a mini-lot will always be around $1 at leverage 1:100 and around $1 when the leverage is 1:500.

What leverage does do, it allows you to have more and larger positions in the markets. It will allow you to place trades with a unit value of 10,000 with just 1oo of your own units if the broker is offering a 1:100 leverage.

So why is it called leverage, for the simple reason that it allows you to leverage larger positions in the market with a smaller amount of your own. So it sounds like a fantastic thing, and it can be for many, the problem is that it can also lead to a few problems if not used sensibly. This is due to the fact that the higher the leverage that you are arguing, the more capital that is at risk if things go the other way.

So let’s take a look at some examples of how leverage can work…

We have two traders, Trader A and Trader B, both of whom have an account balance of $10,000. Trader A has a leverage of $100 and Trader B has a leverage of 1:500. Trader B will be able to place higher value trades in the market due to them having higher leverage. So let’s assume that both traders purchase a mini lot which is the equivalent of 10,000 units of currency.

Since Trader A has a leverage of 1:100, they are required to have at least $1 of that position available in their account, in this example that would be $100. Trader B has a leverage of 1:500 so they are required to have at least $20 in their account to cover the cost of the trade.

The way things can get a bit dangerous is that if you were to use 1:500 as your leverage with an account of $1,000, you are able to place 5 mini lots for just $100, if this takes a 100 pip loss, then it would take your balance down $500 which is 50% of the account. The amount of leverage that you use is up to you, you will need to determine how much risk you are willing to take.

What exactly is margin?

You often hear margin being mentioned, it is also mentioned quite a lot within trading platforms such as MetaTrader 4 or 5. But do we actually understand what it is and how it works? The easiest way of looking at it is to think of it as a loan from the broker which has been given to help cover the position that you are entering the market with. Without having margin, you would not be able to use the leverage that is being offered, the broker uses this margin in order to keep our position open and to cover the potential losses as it goes into drawdown.

Each broker will be offered different levels of margin, this is normally determined by the pair that you are trained and the leverage being offered on your account. Each currency moves in a different way and has a different base value, each of these things will affect the amount of margin that a trade with that currency pair will use. More volatile pairs often have higher margins attached to them due to the amount of movement that they have.

The margin will be noted within your trading platform in the form of a percentage (at last it is in most). The margin percentage often increases the higher the leverage that you have. We can think of margin as the 1 in the leverage ratio. If you have a leverage of 1:100, your margin is the 1 and is also the amount that you need in your account to make the trade. So a $10,000 position will mean that you need $10 in your account to open it, however in reality you need more, as the movements of the markets will require some wiggle room.

Margin Calls

A margin call, that dreaded phrase that you hear people walking about, it’s the be-all and end-all of reading, you get this and it’s over. But what does it actually mean? It is basically what happens when you have no money left in your account, or more accurately, you have no more equity left in your account. It is a way for the broker to close all positions before you go into the minuses and end up owing money. It also acts as a form of protection, so you can never lose more than you put in.

There are two parts to a margin call, you have your used margin which is the amount of money that you have in open trades, you also have a usable margin. This is the amount of money that you have left in your account after the used trades have been taken out, this is what you have left to use. As soon as it hits $0, the broker will automatically close all trades. In reality, it is often a little bit higher just to be safe, but the principle is the same, get down to $0 or near $0 and everything will be closed.

So let’s put that into an example:

Jack is opening up an account that has $5,000 with leverage of 1:100. This means that if Jack wants to open a 1 lot trade, it will cost him $1.000 ($100,000 with the leverage). Jack decided to open up a USD/GBP trade for 2.5 lots, this will end up costing him $2,500 of his margin.

So Jack has used up $2,500 margin, this means that he now has a usable margin of $2,500 (balance – used margin). The trade, unfortunately, starts to go the wrong way, as it continues the wrong way it is slowly eating into the unused margin, if it goes too far, the unused margin will eventually hit $0, when it does, a margin call is made and the trade is automatically closed. This has left Jack with nothing in the account, but it stopped before it went negative and he owed anything.

Hopefully, you now have a better understanding of what leverage is, what margin is, and what a margin call is. It can be complicated at first, but these three things can make up a lot of what you would put into your risk management plan, so it is important that you get a decent understanding of it.