Leverage
Leverage is the ratio between a position's total value and the margin held as collateral by the broker.
At 1:100 leverage, every $1,000 of margin controls a $100,000 position. An adverse move that reduces the position's value by 1% produces a loss equal to the full margin held — the position is leveraged, not the loss tolerance.
This page covers the mechanic; it is not trading advice.
Leverage in a real account
A $5,000 USD account at 1:100 leverage on EUR/USD can open a position up to $500,000 notional — about 4.6 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 1:100 leverage:
- Position notional
- Margin held
- Stop-out trigger (50% of margin held)
If the trader opens this position with exactly $1,085 of equity (no free margin), the account already sits at the margin call level: equity equals margin held, a margin level of 100%, where many brokers issue the warning. The stop-out, where the broker forcibly closes the position, is lower, commonly around 50% of margin held, or $542.50 here. From $1,085 that is a $542.50 loss, about 54 pips of adverse movement, before the stop-out 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 946 pips of adverse movement before the stop-out is reached. The margin call warning fires earlier, once equity falls to the margin held; free margin absorbs adverse movement before either level is reached.
Related terms
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Common questions
Does higher leverage increase the profit or loss per pip?
No. Leverage does not change the profit or loss per pip — those are determined entirely by position size. A 1-lot EUR/USD position at 1:100 or 1:200 produces $10 per pip of movement in either direction. What leverage changes is the margin required to hold that position: at 1:100, $1,085 is held as collateral; at 1:200, $542.50. Higher leverage reduces the margin requirement, leaving more free margin to absorb adverse movement. It does not amplify the per-pip outcome — it determines how much of your capital is tied up as collateral while the trade is open.
How does a margin call work?
A margin call is a notification that account equity has fallen to a defined percentage of the margin held against open positions. That level is commonly around 100% of used margin on many retail accounts, with the exact threshold varying by broker. The margin call itself is a warning. If equity continues to fall, it reaches a lower level called the stop-out, often somewhere between 20% and 50% of used margin. At the stop-out level, the broker automatically closes positions until equity recovers above the threshold. Margin calls and stop-outs are both broker-defined parameters, published in the broker's terms; the close-out order, warning method, and recovery thresholds all vary by firm. Both execute at market, not at a chosen price.