Leverage is borrowed capital. With 1:100 leverage, you can open a $100,000 position with just $1,000. This sounds powerful — and it is — but it cuts both ways. A 1% price move against you on a 1:100 position is a 100% loss of your margin.
How Margin Works
Margin is the money your broker locks as collateral. If your position moves into loss, the margin is eaten first. If it drops below the maintenance margin level, you get a margin call — the broker closes your position whether you like it or not.
Required Margin = Position Size ÷ LeverageExample: You want to trade 1 standard lot (100,000 units) of EUR/USD at 1:30 leverage. Required margin = 100,000 / 30 ≈ $3,333.
Why Beginners Blow Up Accounts
- ▸They use maximum leverage because it's available, not because their strategy needs it.
- ▸They size positions so the stop-loss would wipe 20–50% of the account — one bad trade = disaster.
- ▸They don't realize that spread + slippage on a high-leverage position can trigger the stop instantly.
Leverage doesn't make your strategy better — it just makes the outcomes bigger. A bad strategy with 1:500 leverage goes to zero faster. Use the lowest leverage that lets you execute your plan.
Recommended Leverage by Experience
| Level | Max Leverage | Reason |
|---|---|---|
| Beginner | 1:5 – 1:10 | Mistakes stay survivable |
| Intermediate | 1:10 – 1:30 | Enough for forex, still controlled |
| Advanced | 1:30 – 1:50 | Only with proven edge & risk rules |