What Is Leverage in Forex Trading?

2020-01-26

Leverage lets you open a position larger than the money in your account. The broker only asks you to put up a part of the position value as margin.

How it works

With leverage of 1:100, the margin is 1% of the position value. As an illustration, a position worth USD 100,000 needs about USD 1,000 of margin at 1:100, or about USD 200 at 1:500.

Leverage works both ways

A price move has the same effect on your account whatever the leverage, but higher leverage lets you open larger positions relative to your balance. Larger positions mean larger gains and larger losses.

Margin level and stop-out

If losses reduce your equity, your margin level falls. When it reaches the broker's stop-out level, positions are closed automatically. Each broker page on this site lists the stop-out level.

Practical tips

• Choose position size by how much you can afford to lose, not by the maximum leverage offered.
• Use stop-loss orders.
• Maximum leverage depends on the company you sign with and may be limited by its regulator.