Free Trading School · Level 3: Forex Essentials
Leverage and margin
Leverage lets you control a position larger than the cash in your account. With 30:1 leverage, $1,000 of margin controls $30,000 of currency. Brokers offer it because currency prices usually move less than 1% a day.
Margin is the deposit the broker sets aside to keep your position open. If losses eat into your account and your free margin runs out, you get a margin call, and the broker may close your positions automatically, usually at the worst possible moment.
| Leverage used | Move against you | Effect on the money in the trade |
|---|---|---|
| 1:1 | −2% | −2% |
| 10:1 | −2% | −20% |
| 30:1 | −2% | −60% |
| 50:1 | −2% | −100%: wiped out |
Available leverage is not a target. The leverage a broker offers says nothing about how much you should use.
The fix is simple: size every position by how much you are willing to lose if the stop-loss is hit (Level 5), not by how much margin you have. Done this way, the leverage you actually use stays low.
Leverage multiplies results in both directions. Professionals use far less than what is available.
Quick answers
Leverage lets you control a position larger than the cash in your account. With 30:1 leverage, $1,000 of margin controls $30,000 of currency. Brokers offer it because currency prices usually move less than 1% a day.
Leverage multiplies results in both directions. Professionals use far less than what is available.
$50. A mini lot pip is $1, so two minis make $2 per pip: 25 × $2 = $50.
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