How to use/apply leverage, realistically?
After reading a shear number of articles on leverage, I get the concept behind leverage - i.e. that you borrow money from the broker to make a trade, but not sure on how would one use it realistically. Leverage makes sense when you want to make a trade and you don't have the money but how is it used? If I buy with leverage, do I need to sell with the same amount of leverage to close a trade?
Considering the following examples:
Example 1:
Buying (without leverage) *- Balance: 1000 eur *- Current ETH/EUR rate: 237.1 *- Trading without leverage: 1000/237.1 = 4.218 ETH
Selling (without leverage) - Balance: 4.218 ETH *- Current ETH/EUR rate: 237.3 *- Trading without leverage: 237.34.218 = 1000.9314 EUR
PROFIT: 0.9314 EUR
Example 2:
Buying (5:1 leverage) - Balance: 1000 eur *- Current ETH/EUR rate: 237.1 *- Trading with 5:1 leverage: (10005)/237.1 = 21.088 ETH
Selling (no leverage) - Balance: 21.088 ETH *- Current ETH/EUR rate: 237.3 *- Trading without leverage: 237.34.218 = 5004.1824 EUR
PROFIT: 5004.1824 - 4000* = 1004.1824 EUR*
*** since the selling was done without leverage, how does the broker know that he needs to take 4000 (+interest) to make up for the 5:1 leverage done for the buying? I.e. how is the pairing of the buying/selling determined? Or is the leverage paid back per transaction? i.e. during buying of example 2, does the exchange get (21.088 ETH/5)4 = 16.870 ETH and I get (21.088ETH/5)1 = 4.218 ETH? But if its the case, by simple proportion, I will be getting the same amount of ETH as if I didn't do a leverage when buying (Example 1).
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