Leverage lets you control a big position with a small deposit. The deposit is called margin. Think of it as a security deposit on a rental car: you don't pay for the car, but you'd better not crash it.
You buy 1 lot of EUR/USD at 1.0850. Position value = 100,000 × 1.0850 = $108,500. At 1:100 the broker locks $1,085 as margin. At 1:30 it would lock $3,617.
Leverage is a magnifier
It magnifies profits and losses equally. The leverage setting itself isn't the danger: your position size is. A trader risking 1% per trade at 1:500 is safer than one risking 10% at 1:30.
High leverage is like a sports car. Fun, fast, and absolutely terrifying in the hands of someone who just got their licence.
The account numbers
| Term | Meaning |
|---|---|
| Balance | Money in the account, ignoring open trades |
| Equity | Balance ± floating profit/loss |
| Used margin | Money locked for open trades |
| Free margin | Equity − used margin |
EU, UK and Australian regulators cap retail leverage at 1:30 on major pairs. Offshore brokers often offer 1:500 or more. More leverage = more rope.
- Margin is collateral, not a fee.
- Margin = position value ÷ leverage.
- Control risk with lot size and stop losses, not the leverage setting.