Key takeaways
- Leverage multiplies both profits and losses on the full position.
- Effective leverage tells you more than the advertised maximum.
- Know the margin-call and stop-out levels before you trade.
Leverage lets you control a position much larger than your deposit. That is the attraction and the danger: gains and losses are both calculated on the full position, not on your deposit.
1:30Typical retail major-pair limit in the EU and UKLower for other assets
3.3%Margin required at 1:30Of the position's notional value
50%Common margin-call levelVaries by broker
Margin in one example
You deposit 1,000 USD and open a 30,000 USD position at 1:30 leverage. The required margin is 1,000 USD, so your whole deposit is committed. A price move of 1% against you costs 300 USD, 30% of the account, from a move that looks small on a chart.
| Term | Meaning |
|---|---|
| Used margin | Deposit set aside to hold open positions |
| Free margin | Equity not tied up in positions |
| Margin level | Equity divided by used margin, as a percentage |
| Margin call | Warning when margin level falls below the broker's threshold |
| Stop-out | Automatic closing of positions when margin level falls too low |
Using leverage more safely
- Choose effective leverage, not maximum leverage. Divide the position value by your equity. Staying under 5:1 gives much more room than maxing out.
- Size by risk, not by margin. Decide how much you can lose, set a stop, then calculate position size from that.
- Keep a free-margin buffer. Do not run the account near the margin-call level; spreads widen in volatile moments.Tip: Gaps over weekends can jump past stops.
- Know your broker's stop-out level. It is in the account terms and differs by regulator and account type.
Negative balancesIn some jurisdictions retail brokers must prevent losses beyond your deposit. This is not universal. Check whether negative balance protection applies to your account entity.