Forex Leverage and Margin Guide
Leverage allows forex traders to control a large position with a relatively small deposit. While leverage magnifies gains, it also magnifies losses and requires careful margin management.
Leverage is expressed as a ratio, such as 50:1 or 100:1. With 100:1 leverage, you can control $100,000 worth of currency with a $1,000 deposit. The required deposit is called margin. If your broker offers 50:1 leverage, the margin requirement is 2% of the notional position size. Leverage limits vary by jurisdiction — the US caps retail leverage at 50:1 for major pairs, while some offshore brokers offer 500:1 or more.
Margin is not a cost but a security deposit held while a trade is open. Used margin is the amount required to maintain current positions; free margin is the equity available to open new trades. If floating losses cause equity to drop below a certain percentage of used margin (the margin call level), the broker may liquidate positions to protect itself. Knowing your broker's margin call and stop-out levels is critical for capital preservation.
Risk Management with Leverage
Even with low leverage, poor position sizing destroys accounts. A common rule is to risk no more than 1–2% of account equity on any single trade. High leverage is best used conservatively — leverage amplifies gains, but a 100-pip move against an overleveraged position can wipe out the account. Many professional traders use leverage of 10:1 or less despite having access to much higher ratios.
FAQs
What happens in a margin call?
When equity falls below the margin requirement, the broker issues a margin call. If you do not deposit additional funds or close losing positions, the broker automatically closes trades at market price.
Is higher leverage always better?
No. Higher leverage increases both potential return and risk of ruin. Most losing retail traders use excessive leverage relative to account size.
Can I lose more than my deposit with leverage?
With most brokers, negative balance protection prevents losses exceeding deposits. Check your broker's policy, as some jurisdictions require it and others do not.