Leverage lets you open a position much larger than the cash in your account. The cash your broker sets aside to keep that position open is called margin.
With leverage of 30:1, every $1 of margin controls $30 of currency. A $100,000 position therefore needs about $3,333 of margin.
The formula
Margin = (Lot × Contract Size × Open Price) ÷ Leverage
- Lot — how many lots you open: 1 for a standard lot, 0.1 for a mini lot, 0.01 for a micro lot.
- Contract Size — the units in one standard lot: 100,000 for currency pairs, 100 oz for gold, 5,000 oz for silver (check your broker’s contract specifications).
- Open Price — the price at which you open the trade.
- Leverage — for example 30 for 30:1.
The result is in the quote currency (the second currency of the pair). If your account uses a different currency, convert it at the current exchange rate.
Example — EUR/USD: 1 standard lot at 1.16, leverage 30:1, USD account
(1 × 100,000 × 1.16) ÷ 30 = $3,866.67 margin required
Example — gold (XAU/USD): 1 lot at $4,800, leverage 20:1
(1 × 100 × 4,800) ÷ 20 = $24,000 margin required
How leverage changes your margin
The higher the leverage, the bigger the position a given amount of capital can open — and the smaller the margin as a share of that position. The table uses $1,000 of capital:
| Leverage | Capital | Maximum position (capital × leverage) | Margin required (capital ÷ position × 100) |
|---|---|---|---|
| 1:1 | $1,000 | $1,000 | 100% |
| 1:50 | $1,000 | $50,000 | 2% |
| 1:100 | $1,000 | $100,000 | 1% |
| 1:200 | $1,000 | $200,000 | 0.5% |
| 1:500 | $1,000 | $500,000 | 0.2% |
| 1:1000 | $1,000 | $1,000,000 | 0.1% |
| 1:2000 | $1,000 | $2,000,000 | 0.05% |
The flip side: the margin percentage is also roughly how far the price must move against a fully used position to wipe out your capital. At 1:2000 that is a 0.05% move — about 6 pips on EUR/USD at 1.16. Retail clients in the EU, UK and Australia are limited to 1:30 on major pairs; the higher levels in the table are offered by brokers in other regions.
Leverage magnifies losses too
Leverage does not change how far the price moves — it changes how much that move is worth relative to your deposit.
With $4,000 in your account and the 1-lot EUR/USD position above, a 100-pip move against you costs $1,000: a quarter of your account from a move the euro can make in a single day.
Margin Call and Stop Out
Equity = Balance + Open Profit or LossMargin Level = (Equity ÷ Used Margin) × 100%
If losses push your margin level below the broker’s Margin Call threshold, you will be warned. If it falls to the Stop Out level, the broker starts closing your positions automatically. In the EU, UK and Australia, brokers must close retail clients’ positions once equity falls to 50% of the required margin.
Retail leverage limits
Since 2018, regulators in the EU (ESMA) and UK (FCA) have capped leverage for retail clients, and Australia’s ASIC introduced similar limits in 2021. The main caps are:
| Instrument | Maximum leverage |
|---|---|
| Major currency pairs | 30:1 |
| Non-major currency pairs, gold, major indices | 20:1 |
| Commodities other than gold (for example silver) | 10:1 |
The EU and UK limits also cover other instruments, such as non-major indices (10:1) and individual shares (5:1). Crypto CFDs are capped at 2:1 in the EU, while the UK bans the sale of crypto derivatives to retail clients altogether. Check your regulator’s rules for the full list.
Brokers in other regions may offer far higher leverage, such as 500:1. Higher leverage does not make a trade more likely to win — it only means a smaller move can wipe out your margin.
Rule of thumb: decide your position size from your risk per trade, not from the maximum leverage available. Our position sizing lesson shows how.
Sources
- ESMA — product intervention measures on CFDs for retail investors (2018)
- FCA — Policy Statement PS19/18, Restricting contract for difference products sold to retail clients
- FCA — Policy Statement PS20/10, Prohibiting the sale to retail clients of investment products that reference cryptoassets
- ASIC — Corporations (Product Intervention Order—Contracts for Difference) Instrument 2020/986, in force from 29 March 2021