So let's say I open a forex place with $100 (that is ALL I have in my account) and I control $10,000 worth of currency. What's the leverage?
Proper, 100:1
Right.
Now let's say I tell you that over a beer: Hello Faure, you know what, I have $10,000 dollars just sitting and collecting dust in ANOTHER forex account with ANOTHER forex broker.
You mean to tell me that NOW my leverage isn't 100:1 ANYMORE however 1:1 because I told you that I have $10,000 someplace else???
Come ! What if I tell you that I lied, that the $10,000 is in the cookie jar in my kitchen instead, am I trading using 1:1 leverage according to you?
From the aforementioned your point seems to be the money that is not in your account is irrelavant. I concur.
Leverage doesn't have anything to do with your trading balance, nothing! It means how much money you may control with X quantity of money. Just how much money you've got in your FX account, your bank account, your mattress or your loft doesn't have anything to do with leverage, nothing.
This is what FX is all about: Give me $100 and I will allow you to have $10,000 worth of currency (100:1 leverage). Money is ALREADY in your FX account or just how much money you INTEND to wire to your FX account every week/month is completely insignificant.
That's where you are incorrect. Leverage is a multiplyer of the two risk/ return, that it exists. So there is a direct connection between leverage and risk/return. If you are going to quantify your risk/return contrary to your account balance why quantify leverage from the margin utilisation rate? Shouldn't you're measuring it from your account balance too. You don't say, Gee I created $10 off trading a mini-lot ($10 000) and the margin I want to exchange that was just $100 (1:100). I must have made 10%! , meantime your account balance was actually $10 000, your leverage was 1:1 and you just made 0.1%. The same point was made by leugimp.