Leverage: effective vs available

Available leverage is the maximum your broker lets you use, such as 1:100. Effective leverage is what you are actually using: the total value of your open positions divided by your account equity. Effective leverage is the number that really shows how exposed you are.

Available leverage

Leverage of 1:100 means you only need 1% of a position's value as margin, the deposit set aside to keep the trade open. With $10,000, 1:100 leverage would technically let you open positions worth up to $1,000,000. That does not mean you should.

Effective leverage

Effective leverage = total position value ÷ account equity

Equity is your balance plus or minus any open profit or loss.

Why effective leverage matters

The higher your effective leverage, the bigger the impact of each price move on your account.

Currency pairs can move 1% in a day, so very high effective leverage can cause severe losses fast.

How it links to position sizing

If you size positions using the 1% risk rule, the stop-loss limits how much you can lose, which usually keeps effective leverage in check. Very tight stops can still produce large positions, though, so it is worth checking both numbers. Problems tend to start when traders size by available margin ("I have enough margin for 5 lots") rather than by risk.

Margin calls and stop-outs

If losses shrink your equity too far relative to the margin used, the broker may issue a margin call, a warning that your margin is running low, and then begin closing positions automatically at its stop-out level. Using low effective leverage keeps you well away from these limits.

Key takeaways

• Available leverage is the broker's maximum; effective leverage is what you actually use.
• Effective leverage = total position value ÷ account equity.
• Higher effective leverage means each price move hits your account harder.
• Size by risk, not by available margin, to keep leverage under control.