Leverage is one of the first things you’ll see when you look at a forex broker — numbers like 1:30, 1:100 or 1:500. It’s a powerful tool, and understanding it properly is one of the most useful things a new trader can do.
What is leverage?
Leverage lets you control a larger position than the money in your account. It’s shown as a ratio:
- 1:30 leverage — every $1 of your money controls $30
- 1:100 leverage — every $1 controls $100
- 1:500 leverage — every $1 controls $500
Example: with 1:100 leverage, a $1,000 deposit can control a $100,000 position — that’s one standard lot of EUR/USD.
What is margin?
Margin is the amount of your money set aside to open a leveraged trade. It isn’t a fee — it’s more like a deposit that’s returned when you close the trade.
The formula is simple:
Margin = position size ÷ leverage
| Position | Leverage | Margin needed |
|---|---|---|
| $100,000 (1 lot EUR/USD) | 1:30 | $3,333 |
| $100,000 | 1:100 | $1,000 |
| $100,000 | 1:500 | $200 |
Try different numbers in our free margin calculator.
Why leverage works both ways
Here’s the key thing to understand: leverage doesn’t change how much you gain or lose per pip — your position size does. Leverage just changes how much margin you need.
But because leverage lets you open bigger positions with less money, it makes it easy to take on more risk than you intended. On a $100,000 position, a 1% move against you is $1,000 — which could be your entire deposit at 1:100.
What is a margin call?
If losses reduce your account below the margin your broker requires, you may get a margin call — and if your account falls further, the broker may automatically close your positions (a “stop out”). Knowing your broker’s margin-call and stop-out levels is important.
Leverage limits around the world
Maximum leverage depends on where your broker is regulated. In the UK and EU, retail clients are limited to 1:30 on major currency pairs and 1:20 on gold. Brokers regulated elsewhere may offer much higher leverage, such as 1:500 or more.
How to use leverage sensibly
- Think in risk, not leverage. Decide how much you’re willing to lose on a trade first (for example 1% of your account).
- Size your position from your stop-loss. Our position-size calculator does this for you.
- Use less than the maximum. Many experienced traders use far lower effective leverage than their broker offers.
- Keep spare margin. Don’t use all your available margin on one trade.
Frequently asked questions
What leverage is best for beginners?
Lower is generally easier to manage. What matters most is your position size — keep each trade small relative to your account.
Does higher leverage mean higher profits?
Not by itself. It lets you open larger positions, which magnifies both gains and losses.
Can I change my leverage?
Most brokers let you choose a lower leverage setting in your account area.
Next step: Read Lesson 9, Leverage & Margin Explained, in our free course — or try the margin calculator.
Capital at risk. This article is general education, not investment advice.