Leverage and margin

What it is

Leverage lets you control a position worth much more than the money in your account. At 1:30, £1,000 of margin controls a £30,000 position. Margin is the deposit the broker holds while the trade is open.

Leverage doesn't change how much a move is worth per lot. It changes how big a position you're allowed to open, so it makes it easy to take far more risk than intended. If losses eat through your free margin, the broker closes your positions (a stop out).

How to spot it

• Your platform shows margin used, free margin and margin level for open trades.
• Futures use exchange-set margin per contract instead of a leverage ratio, but the effect is the same.

How to use it

• Decide size from your stop and risk per trade (see Position sizing), never from how much leverage lets you open.
• Keep plenty of free margin so normal moves never trigger a stop out.

Common mistakes

• Treating high leverage as a reason to trade bigger.
• Ignoring margin on several correlated positions at once.

Related