Sizing and risk
Forex Leverage and Margin Without the Myths
What leverage actually does, how margin calls arise and why available leverage is not automatically appropriate.
Answer first
What you should remember
- Leverage lowers required margin but not market exposure.
- Profit and loss are calculated on the full position.
- Free margin is not a risk budget.
Leverage versus exposure
Leverage of 1:100 allows a small margin deposit to control a position one hundred times larger, but it does not make the move safer. A small adverse move on oversized exposure can consume a large share of equity.
Used and free margin
Used margin supports open positions; free margin absorbs fluctuation or new trades. Falling equity reduces margin level until the platform may close positions under the broker's policy.
Why maximum leverage is not a target
High available leverage is not an invitation to use all buying power. A disciplined trader defines acceptable loss and position size first; margin becomes an output rather than the starting point.
Stress-testing the account
Model several stopped trades in one day, wider spreads and correlated positions. If a normal adverse scenario can liquidate the account, size is excessive regardless of comfortable free margin.
Direct answers
Frequently asked questions
Is leverage a loan?
It is margin-based trading capacity provided under broker terms, with gains and losses based on the full position.
What is the best leverage?
There is no universal number; the key is never allowing leverage to override written risk limits.