Lesson 5 of 11 · 9 min
Leverage and margin
What leverage really does, how margin works, and why it magnifies losses exactly as much as gains.
By the end you'll be able to
- Explain what margin is and why it is not a fee
- Calculate the margin required at any leverage
- Describe how leverage magnifies both gains and losses
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A standard lot of EUR/USD is worth about $108,000. Almost nobody deposits that much. A trader with $1,000 can still control one through leverage, and any loss is calculated on the full $108,000.
Margin is a deposit, not a fee
Leverage means your broker lets you control a position much larger than your deposit. To do that, it sets aside part of your balance as margin: a good-faith deposit that is locked while the trade is open and returned when it closes.
The margin required depends on the leverage:
| Leverage | Margin rate | Margin for a $100,000 position |
|---|---|---|
| 1:10 | 10% | $10,000 |
| 1:30 | 3.33% | $3,333 |
| 1:100 | 1% | $1,000 |
| 1:500 | 0.2% | $200 |
Your equity (balance plus or minus open profit or loss) must stay above the margin required. If it doesn’t, you get a margin call, and the broker may close your trades automatically.
Leverage doesn’t change the market, only your exposure
A 50-pip move happens whether you are leveraged or not. What leverage changes is how big a position you can hold, and therefore how much that 50 pips is worth to you.
Try it
Margin locked up Loss from a 50-pip move against you
Notice how leverage changes the margin bar but not the loss bar. Only the position size changes how much a 50-pip move costs you.
Quick check
Question 1 of 3
At 1:50 leverage, how much margin is needed for a $100,000 position?
Question 2 of 3
What happens to the margin when you close a trade?
Question 3 of 3
Which of these directly decides how much a 50-pip move costs you?
Go deeper: Leverage explained: why it’s a double-edged sword · What is margin in forex?