Definition

Leverage is expressed as a ratio such as 1:30, 1:100 or 1:500. With 1:100 leverage, every $1 in your account can control $100 of currency. Leverage is the other side of margin: 1:100 leverage means a 1% margin requirement.

Simple example

You have $500. With 1:100 leverage you could open a position worth $50,000 (half a standard lot). If the price moves 1% in your favour, you gain about $500, doubling your account. If it moves 1% against you, you lose about $500: your whole account.

Why traders use leverage

Currencies usually move less than 1% a day. Without leverage, gains on a small account would be tiny. Leverage makes small accounts able to trade meaningful sizes.

Risks

  • Losses grow exactly as fast as gains.
  • High leverage makes it easy to open positions that are far too large for your account.
  • When losses reach a certain level you can receive a margin call and your positions can be closed automatically (stop out).

Using high maximum leverage does not force you to trade large positions. What matters is your position size relative to your account. Many educators suggest keeping the risk on any single trade to 1-2% of your account.