Leverage and margin

Leverage lets you control a larger position than the cash in your account would otherwise allow. Margin is the slice of your funds set aside to open that position. They are two sides of the same idea, and understanding them is the difference between using leverage deliberately and being caught out by it.

What leverage is

Leverage is expressed as a ratio, such as 1:30 or 1:100. A ratio of 1:100 means that for every 1 unit of your own money committed, you can control a position worth 100 units. The larger the ratio, the larger the position a given deposit can open.

The maximum leverage available to you depends on your account type and the jurisdiction that regulates it, so the exact figure differs between accounts. The concept is the same in every case: leverage scales the size of the position, not the size of your deposit.

What margin is

Margin is the amount of your own funds the broker reserves to keep a leveraged position open. It is not a fee and it is not lost when you open the trade: it is held as collateral and released back to you when the position is closed. Required margin moves in the opposite direction to leverage, so higher leverage means a smaller margin requirement for the same position size.

As an illustration, consider a position with a notional value of 10,000 units of the quote currency:

• At 1:100 leverage, the required margin is the position value divided by 100, or 100 units.
• At 1:30 leverage, the required margin is the position value divided by 30, or roughly 333 units.

The rest of your account balance stays free. That free balance is what absorbs losses and lets you hold other positions, which is why margin and free balance are worth watching together, not in isolation.

The part that catches people out

Because leverage magnifies the outcome of a price move, it amplifies losses on exactly the same scale as gains. A position that is ten times larger than your deposit moves your balance ten times faster in whichever direction the market goes.

If losses erode your funds until the free balance can no longer support your open positions, the account reaches a margin call and positions may be closed automatically to limit further loss. Higher leverage reaches that point sooner. This is why leverage is best treated as a tool to size positions deliberately, not as a way to trade larger than you can afford to lose.

See the numbers move

The margin calculator below uses live prices. Pick an instrument, enter a position size in lots, and change the leverage to watch the required margin rise and fall. Seeing the two numbers respond to each other makes the relationship concrete before you ever place a trade.