What Is Leverage?

Leverage allows you to control a position larger than your actual deposit. It is expressed as a ratio — 100:1 means you can control $100,000 worth of currency with $1,000 of your own capital.

Leverage is one of the most powerful features of forex trading. It also makes forex one of the riskiest markets for unprepared traders.

How Margin Works

When you open a leveraged position, a portion of your account is set aside as margin — a good-faith deposit that covers potential losses. This is not a fee; it is collateral held by the broker while your trade is open.

Margin formula: Position Size ÷ Leverage = Required Margin

Example: Opening a $100,000 position (1 standard lot on EUR/USD) with 100:1 leverage requires $1,000 margin.

If your account equity falls below the required margin level, you receive a margin call — a notification to add funds or reduce positions. If equity falls below the stop-out level, positions are automatically closed.

The Double-Edged Sword

With 100:1 leverage on a $100,000 position:

  • A 1% price move in your favour = $1,000 profit (100% return on your $1,000 margin)
  • A 1% price move against you = $1,000 loss (your entire margin)
This is why leverage requires strict risk management. Professional traders rarely use maximum leverage — they size positions relative to their total account equity, not their available margin.

Appropriate Leverage by Experience Level

LevelSuggested Maximum Leverage
|---|---|
Beginner10:1
Intermediate25:1
Advanced50:1
eplanet Brokers offers leverage up to 500:1 on select instruments. This does not mean you should use it — start with the lowest leverage that still allows meaningful position sizes.

The 1% Risk Rule

The most widely taught position-sizing rule: never risk more than 1% of your total account on a single trade.

On a $5,000 account, 1% = $50 maximum risk per trade. If your stop-loss is 20 pips away, and each pip on a mini lot (10,000 units) is worth $1, you can trade 2.5 mini lots.

This rule keeps you in the game through losing streaks — which every trader experiences.