Leverage can magnify your profits – and your losses. Learn how margin works, how to calculate it, and how to avoid the most common pitfalls that blow up accounts.
In forex, leverage is a loan provided by your broker that allows you to control a large position with a relatively small amount of capital. Margin is the collateral you need to put up to open that position. Think of margin as a “good faith deposit” – it’s not a fee, but it’s locked while the trade is open.
For example, with 1:100 leverage, you can control $100,000 worth of currency with only $1,000 in your account. That $1,000 is your required margin. The higher the leverage, the smaller the margin needed – but the risk grows just as fast.
The ratio of the trade size to your actual capital. Common retail leverage: 1:30 (EU), 1:50 (US), up to 1:500 offshore.
The amount your broker sets aside to keep the trade open. Usually expressed as a percentage (e.g., 1% margin = 1:100 leverage).
If losses eat into your margin, the broker demands more funds or closes your positions automatically.
Used margin is locked by open trades. Free margin is what’s available to open new trades or withstand losses.
The formula is simple: Margin = (Trade Size) / (Leverage) – but trade size is usually expressed in lots. One standard lot = 100,000 units of base currency.
Example: You want to buy 1 standard lot of EUR/USD at 1.1000 with a 1:50 leverage account.
Trade value = 100,000 EUR × 1.1000 = $110,000
Required margin = $110,000 / 50 = $2,200
Your broker shows this as “used margin” in your trading platform.
See how different leverage ratios affect your margin requirement and the effect of a 50‑pip loss.
Leverage doesn’t just amplify gains – it amplifies losses at the same rate. A 1% move against you with 1:100 leverage wipes out your entire margin. Always use stop‑losses and never risk more than 1–2% of your account on a single trade.