IC Markets
3:09
2:39
2:10
2:18
3:43
8:42
Last updated
This tool is for education and planning only and is not financial advice. Forex and CFD trading carries a high risk of losing money rapidly due to leverage. Check your broker's own contract specifications, fees and margin rules before you trade.
Watch this on video
Leverage and margin
From our lesson "Pips, Lots and Leverage" (Forex basics, part 2). This part starts at 1:22 of the 2:39 video and plays in a large player.
What is leverage?
Leverage lets you control a position larger than your deposit. At 1:100, $1,000 of margin can hold a $100,000 position. It magnifies both profits and losses in exactly the same proportion.
Two numbers matter. The broker's maximum leverage only sets how much margin a trade needs. Your effective leverage, the total position compared with your account, is what decides how hard a price move hits your balance.
The effective leverage formula
- Position value
Lots × 100,000 × price. 0.5 lots of EUR/USD at 1.1000 is $55,000.
- Divide by your balance
$55,000 ÷ $5,000 = 11:1 effective leverage.
- Read it as sensitivity
At 11:1, a 1% move in EUR/USD changes your balance by about 11%.
- Margin is separate
At a broker maximum of 1:100, the same trade holds $550 of margin.
Effective leverage on a $5,000 account (EUR/USD at 1.1000)
| Lots | Position value | Effective leverage | 1% move |
|---|---|---|---|
| 0.01 | $1,100 | 0.2:1 | $11 |
| 0.1 | $11,000 | 2.2:1 | $110 |
| 0.5 | $55,000 | 11:1 | $550 |
| 1 | $110,000 | 22:1 | $1,100 |
| 2 | $220,000 | 44:1 | $2,200 |
How much leverage is sensible?
Low single digits
Many experienced traders keep effective leverage under about 5:1 to 10:1 across all open trades.
Retail caps exist for a reason
UK and EU retail clients are limited to 1:30 on majors and 1:20 on gold, because high leverage leads to fast losses.
Size from risk first
Use the position size calculator; the effective leverage then follows from your stop.
Watch the total
Add up every open position, not just the newest trade.
Leverage mistakes
1:500 available does not mean 1:500 used is wise.
Three 1-lot trades on a $5,000 account is over 60:1.
Lower margin does not lower the loss per pip.
High leverage plus a sudden move can wipe out an account before a stop fills.
Leverage Calculator FAQs
What is leverage in forex trading?
Borrowed trading power that lets you hold a position larger than your deposit. At 1:100, $1,000 of margin controls $100,000.
How is forex leverage calculated?
Effective leverage = total position value ÷ account equity. A $55,000 position on a $5,000 account is 11:1.
What is the difference between broker leverage and effective leverage?
Broker leverage is the maximum allowed and sets the margin needed. Effective leverage is what you actually use, and it decides how much a price move affects your balance.
What is the safest leverage for forex trading?
No leverage is safe, but lower is safer. Many traders keep effective leverage in low single digits and risk around 1% per trade.
Sources: ESMA: CFD product intervention measures, European Central Bank: euro reference rates.