What Is Leverage in Trading?
Learn what leverage is in trading, how leverage ratios work, the relationship between leverage and margin, and how leverage magnifies both gains and losses.
Leverage in trading is a facility that allows you to control a large nominal position value using a relatively small cash deposit.
Expressed as a ratio—such as 1:10, 1:50, or up to 1:200 on eligible MarketsAll instruments—leverage multiplies your purchasing power. For example, with 1:200 leverage, a $500 deposit allows you to open a position worth $100,000. While this capital efficiency lets smaller balances take positions that would otherwise be out of reach, leverage multiplies gains and losses by the same factor—but because spread and financing are charged on the full position, the net result tilts against you.
Key Takeaways
- Leverage lets you control a larger position with a fractional upfront deposit.
- Margin and leverage are exact inverses: 1:200 leverage requires a 0.5% margin deposit.
- Leverage increases the speed of capital loss: a 1% adverse market move at 1:100 leverage wipes out 100% of your allocated margin.
- Position size determines monetary risk, not the maximum leverage available on your account.
The Relationship Between Leverage and Margin
Leverage and margin are two ways of expressing the same financial mechanism:
- Leverage: The purchasing power ratio offered on an account (e.g. 1:50 or 1:200).
- Margin: The percentage of the total trade value required as collateral to open and maintain the position (see What Is Margin in Trading?).
The Inverse Relationship: For leverage of 1:L, margin requirement (%) = 100 ÷ L
- 1:20 leverage = 100 ÷ 20 = 5.0% margin
- 1:50 leverage = 100 ÷ 50 = 2.0% margin
- 1:100 Leverage = 1.0% Margin (1 / 100)
- 1:200 Leverage = 0.5% Margin (1 / 200)
How Leverage Works: Symmetrical Mathematical Comparison
To see how leverage alters capital risk, compare an unleveraged trade with a leveraged trade on the same $10,000 position:
| Parameter / Metric | Unleveraged Trade (1:1) | Leveraged Trade (1:100) |
|---|---|---|
| Nominal Position Size | $10,000.00 | $10,000.00 |
| Upfront Capital Required | $10,000.00 cash | $100.00 margin collateral (1%) |
| Scenario A: Market Falls 2% | -$200.00 loss (-2.0% of capital) | -$200.00 loss (-200% of margin, assuming the position was not closed by a stop-out first) |
| Scenario B: Market Rises 2% | +$200.00 gain (+2.0% of capital) | +$200.00 gain (+200% on margin) |
Notice that the absolute monetary gain or loss ($200.00) is identical in both cases because the position size is $10,000. However, for the leveraged trader who only deposited $100, the 2% adverse move produced a loss twice the size of their allocated collateral. This illustrates why consulting our position sizing guide is critical.
Leverage Across Asset Classes
On modern trading platforms, maximum leverage varies by asset class to reflect underlying market volatility:
- Major currency pairs trade with deep liquidity and modest daily percentage shifts, supporting leverage up to 1:200 at MarketsAll (see our currency trading guide).
- Stock indices and energy commodities experience wider intraday swings, where ratios between 1:20 and 1:50 are typical on multi-asset platforms.
- Single-stock shares and digital currencies exhibit higher idiosyncratic volatility, where conservative leverage between 1:5 and 1:20 is typical across global venues.
To verify specific instrument margins, consult our guide on contract specifications on MT5.
Margin Calls, Stop-Outs, and Negative Balance Protection
When trading with leverage, floating losses reduce your account equity. If equity drops too close to your used margin, the platform initiates protective steps:
- Margin Call: An alert notifying you that free equity is low. To keep positions open, you must deposit capital or close trades.
- Stop-Out: If losses continue and equity reaches the broker's stop-out percentage, the server automatically closes positions to protect the account (as detailed in our guide on how leverage increases trading risk).
- Negative Balance Protection: MarketsAll provides Negative Balance Protection on retail accounts, ensuring that your account balance cannot drop below zero during extreme market moves.
Is higher leverage riskier?
Yes, if you use it to open larger positions. Higher leverage lowers the margin required per trade, making it easy to open positions that are too large for your account balance to support.
Can leverage cause you to lose more than your deposit?
No, on retail accounts with MarketsAll. Under our Negative Balance Protection policy, your liability is limited to the funds you have deposited.
What is the difference between leverage and margin?
Leverage is the multiplier representing total purchasing power (e.g. 1:100). Margin is the specific cash collateral locked by the broker to hold that position (e.g. 1%).
Can account leverage settings be adjusted?
Not from the client portal. Account leverage is set when the account is opened and is governed by your account type, jurisdiction and the terms agreed at that point. If you need it changed, contact support.
Does leverage affect trading commissions and spreads?
Spreads and financing fees are calculated on the full nominal position size, not your margin deposit. Holding large leveraged trades increases your overall cost burden.
How do experienced traders manage leverage?
Experienced traders view leverage as capital efficiency, not an excuse to over-trade. Many traders calculate position sizes based on a pre-set stop-loss risk rather than trading at maximum capacity.
Related Terms
What is CFD trading · Pip value · Stop-loss orders · Gap risk · Balance vs equity vs free margin
Put this into practice
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