What Is Leverage in Forex? Margin, Formula and Examples

Leverage in one example

Leverage in forex is written as a ratio such as 1:100 or 1:500. At 1:100, the broker lets you control USD 100 of currency for every USD 1 you put up.

Say you have USD 200 and open 0.10 lots of EURUSD at 1.1000 (an example price). That position is worth 10,000 euros, about USD 11,000. You don’t need USD 11,000; at 1:100 the broker sets aside USD 110 of your balance as margin.

The key point: your gain or loss is calculated on the full USD 11,000 position. A 1% move in EURUSD is about 110 pips, and at USD 1 per pip that’s roughly USD 110, more than half your balance.

Margin: the money set aside

Margin is not a fee. It’s the part of your balance locked while a position is open, and it returns to you when you close the position (plus or minus the trade’s result).

Margin = lots × contract size × price in USD ÷ leverage

Position (example prices)	Working	Margin at 1:100	Margin at 1:500
EURUSD 0.10 lots at 1.1000	0.10 × 100,000 × 1.10	USD 110	USD 22
USDJPY 0.10 lots	0.10 × 100,000 (already in USD)	USD 100	USD 20
Gold 0.01 lots at 4,000.00	0.01 × 100 oz × 4,000	USD 40	USD 8

When the US dollar is the first currency, as in USDJPY, the position is already counted in dollars, so the price drops out. The margin calculator works these out for any size.

Equity, free margin and margin level

Your platform shows these figures in the account panel. Using the USD 200 account above with one EURUSD position open:

Term	Meaning	At opening	After a 40-pip loss
Balance	Money in the account, excluding open trades	USD 200	USD 200
Equity	Balance plus or minus open positions’ result	USD 200	USD 160
Used margin	Margin locked by open positions	USD 110	USD 110
Free margin	Equity minus used margin	USD 90	USD 50
Margin level	Equity ÷ used margin × 100%	182%	145%

Margin level is the number to watch. As losses grow, it falls.

Margin call and stop out

Each broker sets two levels for its accounts:

• Margin call: a warning when your margin level falls to a set percentage. You can add money or close positions.
• Stop out: the level at which the platform starts closing your positions automatically, usually beginning with the one losing most.

Brokers set their own levels and they differ between brokers and account types, so look them up in your account details. To see how it plays out, suppose a broker’s stop-out level were 50% (a hypothetical figure). In the example above, the platform would start closing the position when equity fell to USD 55, about 145 pips against you. The loss then is real and final, even if the price later turns back.

Why high leverage empties small accounts

Leverage doesn’t change what a pip is worth. It changes how big a position the platform will let you open. That is where the danger lies.

Example: a USD 100 balance and 1:1000 leverage. Opening 0.50 lots of EURUSD at 1.1000 needs only USD 55 of margin, so the platform accepts it. But 0.50 lots is worth USD 5 per pip. A 20-pip move against you, which can happen within minutes, wipes out USD 100. The stop out would close the position before that, but most of the balance would already be gone.

With 1:100 leverage, the same 0.50 lots would need USD 550 of margin, and the platform would refuse the order. The lower setting worked as a brake.

Effective leverage: the number that really matters

The leverage setting is a ceiling. What you are actually using is:

Effective leverage = total position value ÷ equity

0.10 lots of EURUSD (about USD 11,000) on USD 200 of equity is about 55:1 effective leverage, whether your account is set to 1:100 or 1:1000. Keeping effective leverage low is what keeps losses manageable, and it comes down to lot size.

Use the lot size calculator to size each trade from your stop loss, and check the margin it needs before you open it.

Leverage in forex: the options you’ll see

Maximum leverage depends on the broker, the account type, the instrument and sometimes the rules of the country where the broker’s company is regulated. Some brokers advertise very high leverage. Exness, our recommended broker, sets its maximum leverage by account equity and offers “unlimited” leverage to smaller accounts that meet its trading conditions; the margin calculator page lists the tiers.

High maximum leverage is not a reason to use it. It means the platform will stop protecting you from oversized positions.

Leverage, swaps and Islamic accounts

Some readers ask whether leveraged trading or overnight swaps are permitted in Islam. Scholars differ, and we don’t give rulings; please ask a qualified scholar. Our Islamic accounts page describes, factually, how swap-free accounts work.

A safe way to learn this

Open a demo account with the same leverage you would use live. Open a position, then watch equity, free margin and margin level change as the price moves. If you trade with a small real balance later, a cent account keeps position sizes tiny while you learn.