How leverage and margin work, with worked examples at 1:100, 1:500 and 1:1000, what happens at a margin call and a stop-out, and how to size a trade from your stop-loss.
Leverage lets you open a position much larger than the money you put up for it. The money you put up is the margin. At 1:100, $1,000 of margin holds a position worth $100,000. If the price moves 1 per cent, the position gains or loses $1,000, which is all of that margin.
This guide works through the arithmetic, then shows how to choose a trade size so that leverage does not decide your risk for you.
What leverage means
Leverage is the ratio between the size of a position and the margin needed to hold it. At 1:100, each $1 of margin holds $100 of position. At 1:500 it holds $500, and at 1:1000 it holds $1,000.
Leverage does not change the market. A 20-pip move on EUR/USD is the same 20 pips at any ratio. On one standard lot it is worth about $200. What leverage changes is how much margin you need to hold that lot, and so how large a position your balance lets you open.
Margin and how it differs from leverage
Margin is part of your own balance, set aside while a trade is open. It is not a fee. When you close the trade, the margin is released and your balance goes up or down by the profit or loss.
Margin = position value ÷ leverage
The position value is the number of units multiplied by the price. One standard lot of EUR/USD is 100,000 euros. In the examples below, EUR/USD is at 1.1000. That is a round number chosen for the arithmetic, not a current price. At 1.1000, one lot is worth $110,000.
Leverage | Margin for 1 lot of EUR/USD at 1.1000 |
|---|---|
1:100 | $1,100 |
1:500 | $220 |
1:1000 | $110 |
The position is the same in every row, and so is what it gains or loses. Only the margin set aside changes.
On EUR/USD the second currency is the US dollar, so in a US dollar account one pip (0.0001) on one lot is worth $10 at any price.
Worked example 1: the same trade at three ratios
You have $2,000 in your account and buy one lot of EUR/USD at 1.1000. To show where a stop-out would come, the last column assumes the broker closes positions when the margin level reaches 50 per cent. That level is an illustration. Check the levels on your own account.
Leverage | Margin | Price rises 20 pips | Price falls 20 pips | Balance after the fall | Fall that reaches a 50 per cent stop-out |
|---|---|---|---|---|---|
1:100 | $1,100 | +$200 | -$200 | $1,800 | 145 pips |
1:500 | $220 | +$200 | -$200 | $1,800 | 189 pips |
1:1000 | $110 | +$200 | -$200 | $1,800 | about 194 pips |
Spreads, commission and swap are left out to keep the numbers clear.
The profit or loss is the same at every ratio, because the position is the same. A 20-pip fall costs a tenth of the balance whether the account runs at 1:100 or 1:1000.
Higher leverage on the same position leaves more free margin, so it takes a slightly larger fall to reach the stop-out. The risk shows up in what that extra free margin lets you open, which is the next example.
Worked example 2: using all the leverage available
Now take the same $2,000 and open the largest position the margin allows, at each ratio.
Leverage | Largest position | Value of 1 pip | Fall that would cost the whole $2,000 |
|---|---|---|---|
1:100 | 1.8 lots | $18 | about 111 pips |
1:500 | 9 lots | $90 | about 22 pips |
1:1000 | 18 lots | $180 | about 11 pips |
At 1:500, a fall of 22 pips is a move of about 0.2 per cent in the price. EUR/USD can move that far in a few minutes around a data release.
In practice the stop-out acts first. With nearly all the margin in use, the margin level starts close to 100 per cent. A 50 per cent stop-out would close the trade after about half of the move in the last column, by which point about half the balance would be gone.
This is how accounts are lost to leverage: through the position size that a high ratio allows.
Margin calls and stop-outs
Your margin level is your equity divided by your used margin, multiplied by 100. Equity is your balance plus or minus the profit or loss on open positions.
When the margin level falls to the broker's margin-call level, you get a warning. If it falls further, to the stop-out level, the platform starts closing positions, usually the one with the largest loss first, until the margin level is back above the stop-out level. These levels differ between brokers and account types.
A stop-out is meant to close trades before the balance reaches zero. It closes at the next available price. If the price gaps, for example at the weekly open or after a central-bank decision, the trade can be closed well past the stop-out level and the loss will be larger.
Negative balance protection
Under our Terms, retail accounts have negative balance protection: if a gap takes your balance below zero, we reset it to zero. It does not limit ordinary losses. A $2,000 account can still lose $2,000.
Sizing a trade from your stop-loss
Choose the most you are willing to lose on the trade before you choose its size. A common rule of thumb is to risk 1 or 2 per cent of the account on one trade. On a $2,000 account that is $20 to $40.
Put the stop-loss where the trade idea is proven wrong, then work out the size:
Position size in lots = amount at risk ÷ (stop distance in pips × pip value per lot)
Say you risk $30 with a 25-pip stop on EUR/USD, where one pip on one lot is $10.
$30 ÷ (25 × $10) = 0.12 lots
At 1:500 that position needs $26.40 of margin (0.12 × $220). At 1:100 it needs $132. The loss if the stop is hit is $30 either way, plus the spread and any commission. On the ECN account the commission on 0.12 lots is $0.60 for the round turn. A stop can also fill worse than its level when the price gaps.
So the leverage on your account is the most you can use. The stop distance and the amount at risk set the size, and the size sets the risk. The margin calculator shows the margin and pip value for a trade before you place it.
Leverage on NAMH Global accounts
There are four accounts, all on MetaTrader 5 (desktop, WebTrader and the mobile app).
Account | Maximum leverage | Minimum deposit | EUR/USD spreads from | Commission |
|---|---|---|---|---|
Cent | 1:1000 | $100 | 1.2 pips | None |
Standard | 1:500 | $100 | 1.2 pips | None |
Pro | 1:500 | $5,000 | 0.7 pips | None |
ECN | 1:500 | $10,000 | 0.0 pips | $5 per standard lot, round turn |
The spreads are the lowest we quote. They widen at the daily rollover and around major news. The leverage figures are the maximums for forex. Leverage can be lower on other instruments, and each symbol's margin requirement is in its MT5 specification. Check the leverage set on your account before you trade.
The Cent account keeps its balance and trades in US cents, so trade sizes are smaller. It is real money, so losses are real, just smaller. Its 1:1000 maximum works the same way as the examples above. The contract size of a cent lot is in the MT5 symbol specification. You can compare all four accounts side by side.
A demo account lets you practise with virtual money and watch how margin and margin level change as the price moves. Fills and spreads on a live account can differ from the demo.
CFDs use leverage. You can lose money quickly, and you can lose all of the money you deposit. Only trade with money you can afford to lose.
Forex leverage questions
What does 1:100 leverage mean in forex?
It means each $1 of margin holds $100 of position. One standard lot of EUR/USD at an example price of 1.1000 is worth $110,000, so it needs $1,100 of margin at 1:100. A 20-pip move on that lot is worth $200, in either direction, whatever the leverage.
Is 1:1000 leverage risky?
The risk depends on the size of the position you open, and high leverage makes it easy to open one that is too big for your balance. At 1:1000, a $2,000 balance can hold about 18 lots of EUR/USD. A move of about 11 pips against that position would cost the whole balance, and the stop-out would close it after roughly half that move.
What is the difference between leverage and margin?
Leverage is a ratio and margin is an amount of money. Margin is the part of your balance set aside to hold a position, and it equals the position value divided by the leverage. At 1:500, a $110,000 position needs $220 of margin.
What happens if my account hits a margin call?
A margin call is a warning that your margin level has fallen to the broker's margin-call level. If the margin level keeps falling to the stop-out level, the platform starts closing your positions, usually the one with the largest loss first. Before that point you can close or reduce positions or add funds. The better plan is to size trades so that a normal move cannot take you near either level.
Can I lose more money than I deposit?
On a NAMH Global retail account, no: under our Terms, retail accounts have negative balance protection, so if your balance goes below zero we reset it to zero. You can still lose all of the money you deposit. A stop-out closes at the next available price, so a price gap can take a loss well past the stop-out level.
NAMH Global Ltd is a company registered in Saint Lucia (No. 2024-00372). It is not licensed by a securities regulator. This article is general information, not investment advice or a recommendation.