Leverage and margin: the tool that grows accounts, and empties them
- What leverage and margin really are
- Margin level, margin call and stop out, in plain words
- Why "effective leverage" matters more than your account setting
Leverage lets you control more than you deposit
With 1:100 leverage, every $1 in your account can hold a $100 position. One standard lot of EURUSD at 1.1650 is a position worth $116,500. Without leverage you would need all of it; at 1:100 the broker sets aside only $1,165. That set-aside amount is the margin.
$116,500 ÷ 100 = $1,165 · at 1:500 it would be $233 · at 1:30 it would be $3,883.
Leverage does not change your profit or loss per pip
This is the part most people miss. One lot of EURUSD is $10 per pip at 1:30, at 1:100 and at 1:1000. Higher leverage only lets you open bigger positions with the same money. That's exactly why it's dangerous: nothing stops you from opening a position your account can't survive.
The words on your platform
- Equity: your balance plus or minus open profits and losses.
- Used margin: the money set aside for open trades.
- Free margin: equity minus used margin, what's left for new trades and for absorbing losses.
- Margin level = equity ÷ used margin × 100%.
- Margin call: the broker's warning when the margin level falls to a set point (often 100%).
- Stop out: when it falls further (often 50%, sometimes 20–30%), the broker starts closing your trades, biggest loss first. The exact levels are in your broker's terms.
Effective leverage: the number that matters
Your account setting (1:500) is the maximum. What you actually use is the effective leverage:
A $1,000 account holding 1 lot of EURUSD ($116,500) is running at about 116:1. A 1% move in the euro, about 117 pips, is a $1,165 loss: more than the whole account. The same account at 0.05 lots runs at about 6:1, and that 1% move costs $58.
Many professionals keep effective leverage in single digits. If you follow the 1–2% risk rule from lesson 3, you'll usually stay there without thinking about it.
Why regulators cap it
In the EU, UK and Australia, retail traders are limited to 30:1 on major currency pairs and 20:1 on gold and major indices (crypto lower still), and brokers there must offer negative balance protection, so you can't lose more than your deposit. Offshore brokers may offer 1:1000 or more. That isn't a gift; it's room to make bigger mistakes.
Try it
For pairs where the dollar is quoted second (EURUSD, gold). For USD-first pairs the position value is lots × contract in dollars.
- Thinking high leverage means higher profit per pip. It only allows bigger positions.
- Watching free margin instead of risk per trade. A trade can be "allowed" and still be reckless.
- Holding through news on high effective leverage: a gap can jump straight past your stop to the stop-out level.
Check yourself
- Margin = position value ÷ leverage. It's a deposit, not a cost.
- Leverage never changes the money per pip; your lot size does.
- Watch effective leverage (positions ÷ equity), and keep it modest.