Just a quick side note here, leg yielding is not actually a lateral exercise - there is no bend ;) It is however, and excellent precursor to teaching lateral exercises, as it teaches the horse to step sideways off the leg and work into an outside rein.
For a true leg yield, he will be flexed slightly to the inside (looking away from the direction of travel), and step forward and across the outside fore/hind legs with the inside fore/hind legs. The shoulders and hips will be parallel to one another and to the side of the arena.
So to feel if he is executing the movement correctly, first you may notice that the horse's shoulder is closer to the rail than his hips. This means that he is probably not crossing the fore/hind legs, and is on the forehand. To correct it, think of stopping the motion of the shoulders, by applying a half halt on the outside rein and holding your seat to stop the shoulders, while asking the inside hind leg to step across to bring the quarters back in line with the shoulders.
You can do leg yield in walk, trot AND canter. Trot is easiest for the horse, but obviously when you're learning how to ride it, walk will be easiest for you to start on. Don't worry about him being forward and engaged to begin with, just get the sideways feeling, taking it as slow as feel comfortable with. Once you get a good feel for the motion of a leg yield, then you can start asking for more power and activity in the hindquarters.