Leverage and margin in plain words

Leverage lets you open a trade larger than the amount of your own funds in the account.

For example, leverage of 1:100 means that with $1 of your own funds you can open a position of up to $100.

However, leverage does not increase your deposit. It increases the position size, so price changes have a stronger effect on the trade’s result.

• The larger the position, the larger the possible profit;
• The larger the position, the larger the possible loss;
• That is why using leverage requires risk control.

Margin — the part of your funds that the broker sets aside for an open position. While the position is open, this money is locked.

• Balance — how much money is in the account, counting only closed trades.
• Equity — your balance plus the current result of open positions.
• Used margin — how much is set aside for open positions.
• Free margin — how much is left for new positions and for withstanding a move against you.

Margin level — the ratio of equity to used margin, as a percentage. While a position is in profit, the level rises; when the price moves against you, it falls.

Every broker has two margin level thresholds.

• Margin Call — a warning: you have almost no free funds left, and you cannot open new positions.
• Stop Out — the broker forcibly closes positions to keep the loss from growing any further.

The key point: once Stop Out is reached, the broker closes positions without asking you. This happens at the current market price and usually at the worst possible moment — during a sharp move.

Let’s go through the logic without any specific broker figures. The larger the position relative to the deposit, the smaller the price move needed to eat up the account.

• The position is small relative to the deposit — a move against you shrinks the account slowly, and there is time for the Stop Loss to trigger.
• The position is large relative to the deposit — the same move is enough for the margin level to drop to Stop Out.
• In the second case, your positions will be closed before the price reaches your Stop Loss.

Hence a rule that seems boring but protects your account: position size is determined by acceptable risk, not by the available leverage. Being able to open a larger volume does not mean you should.

1. Calculate the volume based on risk, not on the maximum the terminal allows.
2. Check the leverage and the Margin Call and Stop Out levels in your account terms.
3. After opening a position, monitor the margin level, not just the current result.
4. Do not open new positions when you have almost no free margin left.
5. Remember that a Stop Loss protects you from loss, but only a reasonable volume protects you from forced closure.

• Leverage increases the position size, not your capital.
• Profit and loss grow equally.
• Margin is the part of your funds locked for a position.
• When Stop Out is reached, the broker closes positions on its own.
• Volume is calculated from acceptable risk, not from the maximum available leverage.