Understanding Leverage & Margin

What Is Leverage?

Leverage lets a trader control a trading position far larger than the capital actually deposited. For example, with 1:100 leverage, $1,000 in capital can control a position worth $100,000. Leverage is provided by the broker as a temporary loan to amplify a trader's buying power.

What Is Margin?

Margin is an amount of funds that must be set aside from your account balance as "collateral" to open and maintain a leveraged trading position. Margin is not a fee — these funds remain yours, but are locked while the position stays open.

Margin Call and Stop Out Risk

If a trading position moves against you and the loss approaches the available margin limit, the broker will send a margin call warning. If the loss continues without action, the broker may automatically close your position (stop out) to prevent the account balance from going negative.

Leverage: A Double-Edged Sword

The higher the leverage used, the greater the potential profit — but also the greater the potential loss from the same price movement. High leverage without solid risk management is one of the main reasons beginner traders lose capital quickly.

As an illustration: with 1:500 leverage, a mere 0.2% price move against your position could mean a 100% loss of the margin used on that position.

Tips for Using Leverage Wisely

• Use lower leverage while you're still learning, even if the broker offers higher leverage.
• Always use a stop loss to limit potential losses on every position.
• Don't use all of your available margin — leave a buffer for normal price fluctuations.