Leverage in trading allows you to control a larger position than your account balance would normally permit, amplifying both potential profits and losses.
Last updated: January 2025
Leverage is expressed as a ratio that shows how much larger your position is compared to your actual investment:
Leverage = Total Position Value ÷ Required Margin
Margin = Total Position Value ÷ Leverage
Leverage amplifies your trading results proportionally. With 1:100 leverage, a 1% market movement equals a 100% change in your investment:
1:10
Conservative
1:50
Moderate
1:100
Standard
1:500
High Risk
You want to trade 1 standard lot (100,000 units) of EUR/USD at 1.0850 with 1:100 leverage.
100,000 × 1.0850
Your chosen leverage
$108,500 ÷ 100
Position controlled with borrowed capital
You control $108,500 with just $1,085 of your own money
Same position: 100,000 EUR/USD with 1:100 leverage. The market moves 50 pips (0.0050).
Your investment
Standard lot EUR/USD
50 × $10
$500 ÷ $1,085
A 0.46% market move (50 pips) created a 46% return due to 1:100 leverage
The same leverage that amplifies profits also amplifies losses. In the example above, a 50 pip move against you would result in a $500 loss - that's 46% of your margin gone.
Leverage in forex works like a loan from your broker. With 1:100 leverage, you can control $100,000 worth of currency with just $1,000 of your own money. The broker provides the remaining $99,000. You keep all profits but also bear all losses, which can exceed your initial investment.
Start with a demo account to understand leverage without risking real money.
