Leverage & margin
6 min read · Educational content, not financial advice
Leverage lets you control a larger position than your account balance alone would allow. At 1:100 leverage, $1,000 of margin can control a $100,000 position. Margin is the portion of your account the broker sets aside as collateral for that leveraged position.
Leverage magnifies outcomes in both directions. A 1% favorable move on a fully leveraged 1:100 position produces a 100% return on the margin used — and a 1% adverse move can produce an equally severe loss. This is the central reason Forex carries substantial risk of loss, even though the underlying currency moves involved are often small.
Brokers enforce margin requirements and may issue a 'margin call' or automatically close positions if your account equity falls too close to the required margin — a mechanism designed to prevent your account balance from going negative, though it doesn't eliminate the risk of losing your deposited capital.
Higher leverage is not inherently better. Many experienced traders deliberately use only a fraction of the leverage their broker offers, sizing positions based on a fixed risk percentage rather than maximum available leverage.