What are leverage and margin?
Leverage lets you control a trading position larger than the money in your account, and margin is the deposit your broker holds to keep that position open. With 30:1 leverage, every $1 of margin controls up to $30 of currency, so a $110,000 position needs about $3,667 of margin. Leverage magnifies both gains and losses because profit and loss are based on the full position size, not the margin.
The two ideas are two sides of the same calculation. Leverage is usually written as a ratio such as 30:1. Margin is written as a percentage or a dollar amount. A 30:1 ratio is the same as a 3.33% margin requirement, and 50:1 is the same as 2%.
How margin is calculated
Required margin = notional value of the position / leverage
Notional value is the full size of the position in your account currency. For EUR/USD, one standard lot is 100,000 euros. At a price of 1.1000, that is 100,000 x 1.1000 = $110,000. If lot sizes are new to you, see what a lot is in forex.
| Leverage | Margin requirement | Margin for 1 standard lot of EUR/USD at 1.1000 |
|---|---|---|
| 50:1 | 2% | $110,000 / 50 = $2,200 |
| 30:1 | 3.33% | $110,000 / 30 = about $3,667 |
| 20:1 | 5% | $110,000 / 20 = $5,500 |
| 10:1 | 10% | $110,000 / 10 = $11,000 |
Lower leverage simply means more margin is locked up for the same position. It does not change how much you make or lose per pip. That is set by position size alone. You can check the margin for any pair and size with the margin calculator.
Leverage limits for retail traders
Regulators cap how much leverage brokers can offer retail clients. The main limits to know are:
- UK, EU and Australia: up to 30:1 on major currency pairs for retail clients, with lower limits on other pairs and asset classes.
- United States: up to 50:1 on major currency pairs under NFA rules, with lower limits on other pairs.
Brokers regulated elsewhere, or clients classed as professional, may be offered higher leverage. Higher available leverage does not mean you have to use it. The leverage your account allows is a ceiling, not a target. To understand how regulation differs between brokers, see our guide on how to choose a forex broker.
Key margin terms on your platform
- Balance: your account value excluding open trades.
- Equity: balance plus or minus the floating profit or loss on open trades.
- Used margin: the total margin held for all open positions.
- Free margin: equity minus used margin. This is what is available to open new trades or absorb losses.
- Margin level: (equity / used margin) x 100, shown as a percentage.
Worked example: one trade from open to margin call
You have a $10,000 account with 30:1 leverage on EUR/USD. You buy one standard lot at 1.1000.
- Used margin: $110,000 / 30 = about $3,667
- Free margin: $10,000 - $3,667 = about $6,333
- Margin level: $10,000 / $3,667 x 100 = about 273%
Price falls 100 pips to 1.0900. One standard lot is worth $10 per pip, so the floating loss is 100 x $10 = $1,000.
- Equity: $10,000 - $1,000 = $9,000
- Margin level: $9,000 / $3,667 x 100 = about 245%
Notice that a 100-pip move, which is less than 1% of the price, has cost 10% of the account. That is the effect of the position's real leverage. The trade controls $110,000 with $10,000 of equity, which is effective leverage of 11:1, well under the 30:1 maximum, yet it is still a large risk.
Margin calls and stop-outs
If losses keep growing, margin level keeps falling. Brokers set thresholds at which they warn you (a margin call) and at which they start closing positions automatically (a stop-out or margin close-out). For retail clients in the UK, EU and Australia, regulators require brokers to start closing positions when equity falls to 50% of the margin required.
In the example above, a 50% margin level would be reached when equity drops to about $1,833. That would mean a loss of roughly $8,167, or about 817 pips. Other brokers and regions use different levels, so check your broker's terms. Either way, a stop-out is a forced exit at a large loss, not a safety net to plan around.
Effective leverage: the number that actually matters
The maximum leverage your broker offers says how big a position you could open. Effective leverage says how big your positions really are relative to your account.
Effective leverage = total notional value of open positions / account equity
Here is how effective leverage translates a 1% price move into an account move:
- 2:1 effective leverage: a 1% move changes equity by about 2%
- 10:1 effective leverage: a 1% move changes equity by about 10%
- 30:1 effective leverage: a 1% move changes equity by about 30%
Currency pairs can move 1% in a day, and sometimes much more after surprise news. At high effective leverage, a normal day's move can do serious damage.
How to use leverage more safely
- Size positions from your stop-loss. Decide the maximum you will lose on a trade, often a small percentage of the account, and calculate size from that. The position size calculator does the arithmetic.
- Always use a stop-loss. It caps the loss on a single trade long before a stop-out would.
- Watch total exposure. Several trades on correlated pairs, such as EUR/USD and GBP/USD, can add up to more leverage than any single position suggests. Our position sizing and portfolio risk lesson covers this.
- Be careful around news and weekends. Prices can gap past your stop, so the actual loss can be larger than planned.
- Understand negative balance protection. Retail clients in the UK, EU and Australia generally cannot lose more than their account balance on CFD and spot forex accounts. Rules differ elsewhere, so confirm with your broker.
For a broader framework, read our risk management basics lesson.
Leveraged trading involves substantial risk of loss and is not suitable for everyone. Leverage magnifies losses as well as gains, and you may lose all of your deposited funds. This guide is educational and not financial advice. Read our risk disclaimer.