Trading with leverage

8 min readUpdated Oct 2026Education only

Leverage lets you control a position much larger than the money you put up. It is what makes forex accessible with small accounts, and it is also the fastest way to lose an account.

Key points

Leverage multiplies profits and losses by the same amount.
Your real risk is set by position size and stop distance, not by the leverage on offer.
Many traders blow up by using the maximum leverage available.

What leverage is

Leverage is borrowed buying power. With 1:30 leverage, every $1 of your money can control $30 of a currency position. The money you set aside to hold the trade is called margin, and your broker lends the rest. You do not pay interest on that loan as such, but positions held overnight carry swap costs.

A worked example

Account balance ($) Lots traded Leverage Price move against you (pips)

Position size$54,250Margin used$1,808Loss on the move$250Share of account25%

Uses EUR/USD at about 1.085 and about $10 a pip per lot. If margin used is above your balance, the trade could not be opened.

The default numbers show the point: a 50 pip move, which happens on an ordinary day, costs a quarter of a $1,000 account when trading half a lot. The loss came from the position size, which leverage made possible on such a small account.

Margin calls and stop-outs

Used margin is the amount tied up in open trades. Free margin is equity minus used margin.
Margin level is equity divided by used margin, as a percentage.
When it falls to the broker's margin call level, you are warned. At the stop-out level, the broker starts closing your trades, usually the biggest loser first, regardless of what you planned.

In practice you never want to get near either. A sensible stop-loss ends the trade long before the broker does.

Regulatory limits

In the UK and EU, retail traders are capped: roughly 30:1 on major currency pairs, 20:1 on other pairs and gold, and lower still on other markets. Retail accounts there also have negative balance protection, so you cannot lose more than your account. Brokers outside those regimes may offer 500:1 or more, with fewer protections. Higher leverage is not a feature to chase.

Using leverage safely

Decide the risk first. For example, 1% of the account per trade.
Set the stop-loss where the trade idea is wrong, not where it is convenient.
Work out the size from those two numbers: size = risk amount divided by stop distance. Leverage then only needs to be large enough to open it.
Cap your total exposure across all open trades, remembering that EUR/USD and GBP/USD often move together.

Rule of thumb

If a normal stop-out would cost more than 1 to 2% of your account, the position is too big.
Effective leverage (total position size divided by account balance) for most disciplined traders stays in single digits.

See also why traders fail, where over-leverage comes up again and again.

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This article is for education and is not financial advice. Rules and figures from third parties change; check them at the source. Trading leveraged products carries a high risk of loss.