Before you read on: this article is general education, not financial advice. It does not consider your objectives, finances or experience. Do your own research, check any broker on its regulator’s register, and speak to an independent adviser if you are unsure.
Last updated 29 October 2026.
Leverage lets you control a position larger than the money in your account. It is one of the most powerful features of forex trading, and one of the most common reasons retail accounts lose money. This guide explains how leverage works, how margin is calculated, and how it changes your risk.
What leverage means
Leverage is borrowed exposure provided by the broker. If your broker offers 1:30 leverage, a $1,000 deposit can control a position worth $30,000. The broker is effectively lending the rest, and you pay for it through the spread and any overnight charges.
Leverage is shown as a ratio, such as 1:10, 1:30, 1:100 or 1:500. Higher ratios mean less money is needed to open the same position, but the risk per unit of deposit rises by the same proportion.
Margin: the deposit you lock up
Margin is the amount of your balance the broker sets aside to keep a position open. It is calculated from the position value and the leverage:
Margin required = position value ÷ leverage.
Worked example: a standard lot of EUR/USD at 1.0850 has a position value of 100,000 × 1.0850 = $108,500. At 1:30 leverage, the margin is $108,500 ÷ 30 = about $3,617. At 1:100, the margin is about $1,085. At 1:500, about $217.
The margin is not a cost. It is money held against the trade and returned when you close it, plus or minus your profit or loss.
Why higher leverage is not better
High leverage does not change the size of a price move. It changes how much of your deposit each move affects. At 1:30, a move of about 3.3% against you uses up all of the margin on a fully leveraged position. At 1:500, a move of 0.2% can do the same.
Worked example: you deposit $1,000 and open a position using 1:100 leverage with the full margin. A 1% adverse move in the price would cost about $1,000 before costs, which wipes out the account. A trader who uses only 10% of the account for margin would survive the same move with most of the balance intact.
Margin calls and stop-outs
If your losses reduce your equity below the broker’s required margin level, the broker may issue a margin call, or close positions automatically, which is known as a stop-out. The exact level varies by broker, so check your terms. A stop-out closes positions at the market price, which may be worse than your planned exit.
Our next guide covers margin and margin calls in detail.
How to choose a leverage setting
Choose leverage based on your position size and risk, not on the maximum the broker offers. A simple method is to decide on your stop-loss distance and risk per trade first, then choose the lot size. The leverage setting then just needs to be high enough to open that position with spare margin. Many experienced traders use far less leverage than the broker allows.
Regulation and leverage limits
Some regulators limit the leverage that brokers can offer to retail clients. For example, European regulators set maximum leverage for major currency pairs for retail accounts. Check your regulator’s rules and your broker’s account terms, because the leverage you can use depends on your jurisdiction and account type.
Common mistakes
Using the maximum leverage. This turns small mistakes into large losses.
Confusing margin with cost. The margin is held, not spent. Your real cost is the spread and any swaps.
Adding positions to a losing trade. This increases leverage at the worst time.
Practice exercise
On a demo account, open a standard EUR/USD position at 1:30, then at 1:100. Note the margin required in each case. Then imagine a 1% move against you and check how much of the balance would be lost.
Summary
Leverage multiplies both gains and losses. Margin is the deposit held against a position, and it is calculated from position value and the leverage ratio. Choose your lot size from your stop-loss and risk per trade, and treat leverage as a result of that decision, not the starting point.
Margin level and free margin
Two numbers appear on most platforms and matter as much as the leverage ratio. Used margin is the total margin locked up by your open positions. Free margin is your equity minus used margin, which is what is available to open new positions or absorb losses.
Margin level = equity ÷ used margin × 100%. When this falls, you are closer to a margin call. Brokers set their own thresholds, so check your account terms.
Worked example: your equity is $1,000 and your used margin is $200. Your margin level is 500%, and free margin is $800. If the market moves against you and equity falls to $300, the margin level drops to 150%. You are now close to the broker’s limit, even though you have not closed any trade.
Leverage limits for retail clients
Regulators in many countries limit the leverage brokers can offer to retail clients. As an example, ESMA rules for EU retail CFD clients set maximum leverage of 30:1 for major currency pairs, 20:1 for non-major currency pairs, gold and major indices, 10:1 for commodities other than gold, 5:1 for individual stocks, and 2:1 for crypto assets. These caps apply to retail CFDs, which is how many retail forex accounts are offered. The UK applies the same limits under the FCA rules. These limits can change, so confirm the current rules with your regulator before you rely on them.
Brokers regulated outside these regimes may offer much higher leverage. Higher leverage is not a sign of a better broker. It is a sign of a broker that takes on more risk for its clients.
Worked example: three leverage settings on the same trade
You want to trade one standard EUR/USD lot, with a position value of about $108,500, and you have a $5,000 account.
- At 1:10: margin required is about $10,850. This is more than your account, so you cannot open the position.
- At 1:30: margin required is about $3,617. You can open the trade, but only $1,383 is left as free margin.
- At 1:100: margin required is about $1,085. You can open the trade with plenty of free margin, but a 100-pip move against you would cost $1,000, about 20% of the account.
The leverage setting did not change the trade. It changed how much of the account the trade could damage. The lowest leverage that lets you hold a planned position is usually the safest choice.
Planning with leverage: a checklist
- Decide the maximum money you will lose on the trade, such as 1% of the account.
- Set the stop-loss at the level where your idea is wrong.
- Calculate the lot size from the risk and the stop distance.
- Check the margin required for that lot size, and confirm you keep enough free margin.
- Only then consider whether your leverage setting needs to change.
Leverage and holding time
Leverage matters more for trades held overnight or over several days, because swaps and adverse moves accumulate. A position that looks small on the day can grow into a large loss if you hold it through a volatile week. If you hold longer, plan for a bigger swing than you would expect during the day, and size your position so that a normal swing does not trigger a margin call.
Frequently asked questions
Does leverage increase the spread? Not directly, but a broker may charge a different spread on different account types. Check the full cost.
Can I change leverage after I open a trade? Some brokers allow you to change leverage on your account, but changing it does not change the position size or the risk of an open trade.
Is high leverage useful for small accounts? It lets you open larger positions with less money, but it also makes it easier to lose the whole account quickly. For small accounts, the risk control matters most.
Sources and further reading
We checked the regulatory claims in this article against the following primary sources. Rules change, so check the current version before you rely on any figure.
ESMA press release, 27 March 2018 (leverage caps, 50% close-out and negative balance protection for EU retail CFD clients, and the 74–89% loss statistic).
FCA statement on ESMA measures (the UK position, including the 50% close-out and negative balance protection).
FCA policy statement PS19/18 (permanent UK restrictions on retail CFDs, confirmed in 2019).
ASIC news release, 11 November 2020 (Australian leverage caps for retail CFDs from 29 March 2021, standardised margin close-out and negative balance protection). Check the current ASIC position before you rely on it.
Pip and lot definitions are market conventions rather than regulatory rules. Check the contract specification for each instrument with your broker.
Risk warning: trading forex and CFDs involves a high risk of loss, and most retail accounts lose money. This article is general education, not financial advice. Read our disclaimer.