Understanding Leverage and Margin
Why leverage magnifies losses as well as gains, with worked examples.
This guide explains how a market or product works, including its material risks. It is educational only and is not investment advice. Leverage magnifies losses as well as gains, education does not remove financial risk, and trading is not a reliable source of income.
Leverage lets a trader control a position larger than the money deposited. Margin is the deposit required to open and keep that position.
A worked example
With leverage of 30:1, a deposit of 1,000 controls a position of 30,000. A 1% move against the position causes a loss of 300, or 30% of the deposit. A 3.3% move against it would wipe out the deposit.
Margin calls and close-outs
If losses reduce the account below the required margin, the provider can close positions automatically, often at an unfavourable price. EU rules require negative balance protection for retail clients, but losses up to the full deposit remain possible.
Sources and data
- ESMA, leverage limits for retail clients
Corrections and updates
No corrections recorded. See our Corrections Policy.