Lesson 2 of 3. Free to read, no signup.
How leverage and margin really work
Leverage does not increase your risk. Position size does. Here is the difference.
- Level
- Beginner
- Read time
- 9 min
- Cost
- Free
What you will be able to do
- Calculate the margin a position requires before you open it
- Explain why leverage itself is not the risk
- Recognise the account state that triggers a margin close-out
Margin is a deposit, not a cost
Margin is the slice of your balance the broker sets aside while a position is open. It is not spent and it is not a fee. Close the position and it returns to your available balance.
Leverage is simply the ratio that decides how big that slice is. At 30:1, a position needs about 3.3 percent of its notional value as margin. At 400:1, about 0.25 percent.
- At 30:1
- ~$3,333
- At 100:1
- ~$1,000
- At 400:1
- ~$250
The part most explanations get wrong
Higher leverage does not make a trade riskier. A one standard lot position on EUR/USD moves the same amount of money per pip whether your account is set to 30:1 or 400:1. The market does not know your leverage setting.
What higher leverage changes is how large a position you are permitted to open. The risk arrives when that permission gets used. Leverage is the ceiling, position size is the decision.
Margin level and close-out
Your margin level is equity divided by used margin, shown as a percentage. As a position moves against you, equity falls, used margin does not, and the percentage drops.
Every broker publishes two thresholds: the level where they warn you, and the level where they begin closing positions automatically. Regulated retail accounts in the UK, EU and Australia close out at 50 percent. Know both numbers for your broker before you need them.
Why the caps differ by country
Retail leverage on major pairs is capped at 30:1 in the UK, EU and Australia. Offshore entities of the same brand often offer several hundred to one to the same person.
The cap is a consumer protection, and the entity you are onboarded to decides which one applies to you. That entity is named in your account documents, not on the marketing page.
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