Leverage and margin are fundamental concepts in forex trading. Although closely related, they serve different purposes: leverage expresses the size of market exposure relative to the margin requirement, while margin is the amount of account funds set aside to open and maintain a position. Understanding both can help traders size positions and assess risk. For an introduction to currency pairs and how the market works, see our forex basics for beginners guide.
Leverage is a ratio that allows traders to control a position whose notional value exceeds the margin allocated to it. For example, at 1:100 leverage, a position with a notional value of $10,000 would require an initial margin of $100, assuming the ratio is available for that instrument and account and other broker requirements are met.
Leverage is not additional profit or free financing. It enables greater exposure, which can magnify gains and losses relative to the capital committed. Maximum leverage varies by regulator, client classification, instrument and broker terms. For independent background on these risks, read the CFTC advisory on forex and margin trading; its regulatory rules relate to the US market.
Margin is the portion of account funds allocated as collateral for an open position. Used margin is not, by itself, a fee or trading commission, but it reduces the funds available for additional positions or potential losses. Floating losses and trading costs, including spreads, commissions and overnight financing where applicable, can affect account equity.
For a simplified example where both the notional position value and margin are expressed in the same account currency:
Required margin = Notional position value ÷ Leverage ratio number
A $20,000 position with 1:100 leverage therefore requires $200 in margin in this simplified scenario. Actual requirements may involve currency conversion, tiered margin rates or additional instrument-specific rules. The MetaTrader 5 margin calculation guide explains how instrument types and margin currencies affect these calculations.
Feature | Leverage | Margin |
Definition | Ratio of notional exposure to required margin | Account funds allocated as collateral |
Expression | For example, 1:30 or 1:100 | Cash amount or margin percentage |
Purpose | Determines available exposure relative to margin | Determines collateral needed for a position |
Risk impact | May enable larger positions and greater capital sensitivity | Affects free margin and margin level |
Assume a constant $10,000 notional position with no additional margin requirements:
Leverage | Required margin | Margin rate |
1:10 | $1,000 | 10% |
1:20 | $500 | 5% |
1:50 | $200 | 2% |
1:100 | $100 | 1% |
1:200 | $50 | 0.5% |
Higher leverage lowers the initial margin required for the same position size, but it does not reduce the position’s underlying market exposure.
For an unchanged position size and the same price movement, changing the leverage ratio alone does not change the monetary profit or loss attributable to that movement. In a simplified example, a 1% price movement on $10,000 of notional exposure corresponds to approximately $100 in profit or loss before trading costs, depending on the position direction. To connect exchange-rate movements with monetary gains or losses, see how to calculate pips in forex with worked examples.
Higher leverage can, however, allow a trader to open larger positions with the same amount of margin. Increasing position size magnifies the potential monetary impact of price movements and can cause account equity to decline rapidly.
Key account indicators include equity, used margin, free margin and margin level. Common calculations are:
Free margin = Equity − Used margin
Margin level (%) = (Equity ÷ Used margin) × 100, when used margin is greater than zero. See the MetaTrader 5 guide to account equity and margin indicators for the platform definitions.
A falling margin level may trigger a margin call warning or forced position closure (stop out), according to the broker’s thresholds and procedures. A warning is not guaranteed before a position is closed, particularly during extreme volatility or market gaps.
No. Requirements can vary by instrument, account type, regulator, position size and market conditions. Check the broker’s contract specifications, margin policy and stop-out rules before opening a position. Explore the AT Securities global markets page for an overview of available services and instruments, then check the terms applicable to your account with the service provider.
Leverage is the ratio governing potential market exposure, whereas margin is the collateral required to support it. Greater leverage reduces the required margin for the same position, but may encourage larger positions and amplify the effect of market volatility on account capital. Position sizing, free-margin monitoring and a clear risk management plan remain essential.
Risk warning: Forex and leveraged products involve a high level of risk and may not be suitable for all investors. Losses may exceed initial margin depending on the product, jurisdiction and applicable protections. Review the relevant entity’s risk disclosures and terms before trading.
