Module 3: The Trader's Language · Lesson 14/40
8 min 40 XP
Leverage lets you control a position larger than your deposit. At 1:100, your $1,000 controls $100,000, a full standard lot. The broker isn't being generous: it lends size because your deposit acts as a security buffer, and it will close your trades automatically before its own money is ever at risk. Leverage does not increase your odds, it multiplies the outcome of whatever odds you already have, in *both* directions.
Required margin
Margin = Position size ÷ Leverage
1 standard lot of EUR/USD at 1.10 = $110,000 of exposure. At 1:100 leverage the broker locks $1,100 of your balance as margin while the trade is open.
While a trade is open, your account splits in two: used margin (locked as collateral) and free margin (available for losses and new trades). The broker watches one number, margin level = equity ÷ used margin. As losses eat your equity, margin level falls. At ~100% you get the famous margin call (warning). At the stop-out level (often 50%), the broker force-closes your positions, at the worst possible moment, by design.
$1,000 account, 1:100 leverage, 1 standard lot of EUR/USD ($10/pip). A mere 50-pip move against you, an ordinary Tuesday, costs $500: half the account. Two of those and you are gone. The same account trading 0.05 lots risks $25 on those 50 pips: survivable, repeatable, professional. **High leverage doesn't kill accounts; the position sizes it *enables* do.**
Why brokers advertise 1:500
High leverage attracts deposits and accelerates the cycle of blown accounts and re-deposits. The leverage number on the website is marketing. The only number that matters is how much of your account one stop-loss costs, and you control that with size.