Lesson 12 of 20
Leverage and margin
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Leverage lets you control a position far larger than your deposit. At 1:100 leverage, $1,000 controls $100,000 of currency. Margin is the slice of your balance the broker locks up as collateral while that position is open.
1:30
Margin for 1 lot
$3,617
1:100
Margin for 1 lot
$1,085
1:500
Margin for 1 lot
$217
The maths
Required margin = position value ÷ leverage. One standard lot of EUR/USD at 1.0850 is worth $108,500. At 1:100 that needs $1,085 of margin; at 1:500 it needs $217.
| Leverage | Margin for 1 lot | Free margin left on $2,000 |
|---|---|---|
| 1:30 | $3,617 | Cannot open the trade |
| 1:100 | $1,085 | $915 |
| 1:500 | $217 | $1,783 |
Leverage does not create risk — size does
This is the part almost every beginner gets wrong. Higher leverage only reduces the margin required. Your actual risk comes from lot size and stop distance. A 0.01 lot trade is equally low-risk at 1:30 or 1:500. The danger is that high leverage makes an oversized position possible.
Margin call and stop out
Margin level = equity ÷ used margin × 100. Drop below your broker's margin-call level and you cannot open new trades; drop below the stop-out level and the broker starts closing your positions automatically, worst loser first.
Signs you are over-leveraged
- A single trade uses more than about 10–20% of your balance as margin.
- A normal 30-pip move against you costs more than a few percent of the account.
- You watch the P/L number instead of the chart.
- You move or remove stops because the loss 'feels' too big — a sizing problem, not a discipline problem.
Rule of thumb
Use leverage for flexibility, not for size. Pick the position size your 1% risk allows, and let leverage simply free up margin you never intended to spend anyway.
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