JustChartsWhat Are Leverage and Margin in Forex? Explained With Examples
Leverage lets you control a position larger than your deposit; margin is the deposit your broker sets aside to open it. With 1:30 leverage, a €100,000 position needs about €3,333 of margin. Leverage magnifies both profits and losses — the same percentage move against you costs 30 times more than without leverage.
How does leverage work?
Leverage is expressed as a ratio such as 1:30 or 1:100. At 1:30, every $1 of your money controls $30 of currency. Your broker effectively lends you the rest for as long as the position is open.
How is margin calculated?
Required margin = position size (in your account currency) ÷ leverage
Example: buying one standard lot (100,000 units) of EUR/USD at 1.1000 is a position worth $110,000.
- At 1:30 leverage: $110,000 ÷ 30 = $3,666.67 margin
- At 1:100 leverage: $110,000 ÷ 100 = $1,100 margin
Note that the margin depends on the base currency (the first one in the pair). For EUR/JPY, convert the euro amount into your account currency first.
Leverage multiplies losses as well as gains
A 1% move in EUR/USD on that $110,000 position is $1,100. If your account is $3,700, a 1% move against you wipes out about 30% of it. Leverage doesn’t change how far the market moves — it changes how much each move costs you.
What is a margin call and a stop-out?
- Free margin is your equity minus the margin in use — the cushion that absorbs losses.
- Margin level = equity ÷ used margin × 100%.
- When the margin level falls to the broker’s margin call level, you’ll be warned. At the lower stop-out level the broker starts closing positions automatically, usually starting with the biggest loser.
How much leverage is allowed?
It depends on where you live and the broker’s regulator. In the EU and UK, retail traders are capped at 1:30 on major currency pairs; in the US the cap is 1:50 on majors. Australia also caps retail leverage at 1:30 on majors, and Japan at 1:25. Offshore brokers may offer 1:500 or more, but with fewer protections. Some countries restrict retail forex trading altogether, so check that your broker is licensed by the financial regulator in your own country.
How to use leverage more safely
- Think in terms of risk per trade, not available leverage. Many traders risk 1% or less of their account per trade.
- Always use a stop-loss.
- Remember that effective leverage (total position size ÷ equity) is what matters, not the maximum your broker offers.
Frequently asked questions
Is 1:100 leverage good for beginners?
High maximum leverage isn’t harmful by itself, but using it is. Beginners are generally safer keeping effective leverage low and risking a small, fixed percentage of the account per trade.
Can I lose more than my deposit?
With fast market gaps it is possible to lose more than the account balance. EU and UK retail brokers must provide negative balance protection; elsewhere, check your broker’s terms.
What is the difference between leverage and margin?
Leverage is the ratio of position size to the money required; margin is the actual amount of money set aside to open the position.
What happens at a margin call?
Your broker warns you that your equity is low relative to your open positions. If losses continue to the stop-out level, positions are closed automatically.
Put it into practice
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Calculate margin with the free calculatorThis article is for education only and is not financial advice. Trading leveraged products carries a high risk of losing money. Contract sizes, trading hours and leverage limits vary by broker and country — always check your own broker’s specifications.