Module 2: Pips, lots and leverage · Lesson 8 of 13
Leverage and margin
3 min read
Leverage lets you control a trade much larger than the money in your account, and margin is the deposit your broker sets aside to open that trade. With leverage of 1:100, you need margin of just 1% of the position's value.
How leverage works
Leverage is expressed as a ratio. At 1:100, every $1 of margin controls $100 of currency. At 1:30, every $1 controls $30. The broker effectively lends you the difference, though you are fully responsible for any losses.
| Leverage | Margin required | Margin for a $100,000 position |
|---|---|---|
| 1:10 | 10% | $10,000 |
| 1:30 | 3.33% | $3,333 |
| 1:100 | 1% | $1,000 |
The maximum leverage you can use depends on your broker, your location's regulations and the instrument.
Working out margin
Margin = position value / leverage
Example: You buy 1 standard lot of EUR/USD at 1.1000. The position is worth 100,000 euros, or 100,000 x 1.10 = $110,000. At 1:100 leverage, the margin is 110,000 / 100 = $1,100. At 1:30, it would be about $3,667.
Margin is not a fee. It is a portion of your own money locked while the trade is open and released when you close it.
Key account terms
- Balance - your account money excluding open trades.
- Equity - balance plus or minus the profit or loss on open trades.
- Used margin - the total margin locked by open trades.
- Free margin - equity minus used margin, available for new trades or to absorb losses.
Leverage cuts both ways
Leverage does not change how much a pip is worth; lot size does that. What leverage changes is how large a position you can open relative to your account, and therefore how big a share of your account each pip represents.
Example: With a $1,100 account fully used as margin for 1 standard lot of EUR/USD, a 50-pip move against you costs about $500, nearly half your account. The same move with 1 micro lot would cost about $5.
Risk: High leverage can wipe out an account very quickly. Using less leverage than the maximum allowed gives you more room to withstand normal price swings.
Key takeaways
- Leverage lets a small deposit control a much larger position.
- Margin = position value divided by leverage; 1:100 means 1% margin.
- Margin is locked funds, not a cost.
- Leverage magnifies both gains and losses relative to your account.
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Sign up freeEducational content only — not investment advice. Leveraged trading carries a high risk of loss.