Leverage is why a trader with a $1,000 account can control a $30,000 position. It is the most useful and the most dangerous feature of global markets, and almost every blown account has the same cause: too much of it.
What leverage is
Leverage lets you open a position larger than your cash. Your broker asks you to set aside only a fraction of the position's value as a deposit, called margin. With 1:30 leverage, you put up 1/30th (about 3.3%) of the position's value.
The catch: profits and losses are calculated on the full position, not on your deposit. A 1% move on a $30,000 position is $300, whether your account holds $30,000 or $1,000.
How margin is calculated
Required margin = position value ÷ leverage.
Worked example
Account: $10,000. Buy 1 standard lot of EUR/USD at 1.0850, with 1:30 leverage.
Position value = 100,000 × 1.0850 = $108,500.
Required margin = $108,500 ÷ 30 = $3,616.67. The rest, $6,383.33, is your free margin.
Margin level = equity ÷ used margin = $10,000 ÷ $3,616.67 = 276%.
Margin level, margin calls and stop out
As a trade moves against you, your equity (balance plus open profit or loss) falls, and so does your margin level. Brokers set two thresholds. At the margin call level, often 100%, you get a warning and usually can't open new trades. At the stop-out level, your broker starts closing positions automatically. For retail CFD clients in the UK and EU, regulators require positions to be closed by 50% at the latest.
Leverage limits around the world
Regulators in many countries cap the leverage brokers can offer retail traders.
| Region | Major FX pairs | Other notable limits |
|---|---|---|
| UK, EU, Australia (retail CFDs) | 30:1 | 20:1 minor FX, gold, major indices · 10:1 other commodities · 5:1 shares · 2:1 crypto |
| United States (retail forex) | 50:1 | 20:1 on other currency pairs |
| Offshore brokers | Up to 1000:1 or more | Often weak or no investor protection |
Key takeaways
- Leverage lets you control a position larger than your cash; margin is the deposit you set aside to open it.
- Profit and loss are calculated on the full position size, so leverage magnifies both.
- Margin level = equity ÷ used margin; brokers warn at the margin call level and close positions at stop out.
- Use leverage to free up capital, never to justify a bigger risk; size trades from your stop-loss.