Leverage
Leverage is the ratio between a position's total value and the margin held as collateral by the broker.
At 1:30 leverage, every $1,000 of margin controls a $30,000 position. Leverage amplifies both profitable and loss-making outcomes at the same ratio — a 2% adverse move on a position taken at the maximum available leverage of 1:50 consumes 100% of the margin held against it.
This page covers the mechanic; it is not trading advice.
Leverage in a real account
A $5,000 USD account at 1:30 leverage on EUR/USD can open a position up to $150,000 notional — about 1.4 standard lots at 1.0850. The broker reserves the margin, credits and debits the account as the position moves, and closes positions if equity falls below a defined threshold.
The trader does not borrow capital from the broker in the normal sense. The position is synthetic, mirroring price movement on the underlying instrument. Margin is collateral against adverse movement — not a loan that incurs interest in its own right.
Leverage and margin: a worked calculation
For a USD account opening 1 standard lot of EUR/USD at 1.0850 with 1:30 leverage (the ESMA cap for major FX pairs in the EU and UK):
- Position notional
- Margin held
- Margin call trigger (50% of margin held)
If the trader opens this position with exactly $3,617 of equity (no free margin — the worst case), a margin call triggers when equity falls to 50% of margin held: $1,808.50. From a starting equity of $3,617, that is a $1,808.50 loss, or about 181 pips of adverse movement before the broker closes the position.
In a realistically funded account with significant free margin — say $10,000 starting equity with the same single position — the position withstands approximately 819 pips of adverse movement before the same trigger fires. Free margin absorbs adverse movement before the margin call mechanism activates.
Related terms
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Common questions
What is the ESMA leverage cap?
ESMA (European Securities and Markets Authority) caps retail leverage at 1:30 for major FX pairs, 1:20 for non-major FX pairs and gold, 1:10 for non-gold commodities and major equity indices, 1:5 for individual equities and minor indices, and 1:2 for cryptocurrencies. The caps apply to retail clients in the EU and UK. Professional clients are exempt; brokers offer the same instruments at higher leverage to non-EU and non-UK retail clients. The caps are regulatory floors, not broker policy.
How does a margin call work?
A margin call triggers when account equity falls to a defined percentage of the margin held against open positions — typically 50% on retail brokers, sometimes 100%. At the trigger level, the broker closes positions automatically (largest losing first) until equity rises above the threshold. Margin calls are slower than stop-losses and execute at market, not at a chosen level. The exact percentage and execution method differ by broker and are published in the broker's terms.