Leverage lets you open a $100,000 position with a $1,000 account. That sentence sells a lot of trading accounts — and it is why so many end in a margin call. Understanding margin takes ten minutes and protects you from one of the most expensive surprises in trading.
- Margin is the deposit locked for open positions; free margin is what remains available.
- Margin level = Equity ÷ Margin × 100%. Brokers issue a margin call and later a stop out as it falls.
- Leverage does not change profit or loss per pip — lot size does.
- High leverage only makes it possible to open oversized positions; proper sizing makes leverage irrelevant.
- A correctly sized stop-loss closes a trade long before stop out in normal market conditions.
- Retail leverage limits depend on your broker's regulator.
The five numbers in your terminal
| Term | Meaning |
|---|---|
| Balance | Account money from closed trades and deposits |
| Equity | Balance + floating profit/loss of open trades |
| Margin | Deposit locked by the broker for open positions |
| Free margin | Equity − Margin: available for new trades and losses |
| Margin level | Equity ÷ Margin × 100% |
How margin is calculated
EURUSD 0.50 lot at 1.0800, 1:100 → 0.5 × 100,000 × 1.08 ÷ 100 = $540
For pairs where USD is the base currency (USDJPY, USDCAD) on a USD account, the price drops out: 1 lot at 1:100 requires $1,000. For gold, use the XAUUSD price and the 100-oz contract — see the gold maths guide.
The leverage myth
Leverage does not change how much you win or lose per pip. A 0.50-lot EURUSD trade earns or loses $5 per pip whether the account leverage is 1:30 or 1:500. Leverage only changes how much margin is locked — and therefore how large a position you are able to open.
Not leverage itself, but using it to open positions far too large for the account. Risk is set by lot size and stop-loss distance; high leverage simply removes the brake.
Margin call and stop out
As floating losses grow, equity falls and so does the margin level. Brokers define two thresholds:
- Margin call level (often around 100%) — a warning; you usually cannot open new positions.
- Stop out level (often 20–50%) — the broker starts closing positions, largest loss first, to protect the account from going negative.
The exact levels differ between brokers and account types; find them in the account conditions or in the symbol specification.
Worked example
Account $1,000, leverage 1:100, stop out at 50%. You buy 0.50 lots EURUSD at 1.0800 without a stop-loss.
| Step | Calculation | Result |
|---|---|---|
| Margin | 0.5 × 100,000 × 1.08 ÷ 100 | $540 |
| Margin level at entry | 1,000 ÷ 540 | 185% |
| Equity at stop out | 50% × $540 | $270 |
| Loss to stop out | 1,000 − 270 | $730 |
| Pips to stop out | 730 ÷ $5 per pip | ≈ 146 pips |
A 146-pip move against you on EURUSD is unusual in a day but entirely normal over a week or two. With a 25-pip stop-loss, the same trade would have lost $125 — 12.5% of the account, still far too much, but survivable. With proper sizing (1% risk) the position would have been 0.04 lots.
⚙Margin, leverage and position size calculatorsFree WONNFX calculators — forex, gold, indices→Leverage limits by regulation
Retail leverage depends on where your broker is regulated. Under EU (ESMA) rules, for example, retail clients get up to 1:30 on major currency pairs, 1:20 on non-major pairs, gold and major indices, 1:10 on other commodities, 1:5 on individual shares and 1:2 on crypto CFDs. Offshore brokers often offer 1:500 or more. Higher maximum leverage is not an advantage if you size positions correctly — it only matters for margin.
Free margin and opening new trades
Every new position locks additional margin, reducing free margin and the margin level. With several open trades a single adverse move affects all of them at once, so margin level can fall much faster than you expect from any one position. Before opening a trade, look at what the margin level will be after it, not only what it is now.
Equity $2,000 · Used $400 · New $600 → 2,000 ÷ 1,000 = 200%
Margin on hedged positions
On hedging accounts, opening a buy and a sell on the same symbol often requires less margin than two separate positions — some brokers charge margin only on the larger side. This can make "locking" a losing trade look cheap. It is not: the locked loss remains, spreads and swaps are paid twice, and closing one side later exposes the account again.
Weekend gaps and margin
Stop out happens at the next available price. If the market gaps over the weekend beyond your stop-loss and beyond the stop-out level, the loss can be larger than expected, and on some accounts the balance may even go negative. Brokers with negative balance protection reset the balance to zero, but the account is still lost. Reduce positions or margin usage before weekends and major events.
Quick margin checklist
- Know your broker's margin call and stop out levels.
- Check the leverage of each instrument — metals and indices often differ from forex.
- Calculate margin before trading gold or indices with a small account.
- Watch combined exposure across correlated symbols.
How to never see a margin call
- Size every trade from risk %, not from available margin.
- Always use a stop-loss — it caps the loss long before stop out.
- Keep the margin level well above a few hundred percent in normal trading.
- Count correlated positions together; five USD trades are one big USD bet.
- Avoid averaging into losing positions — the classic path to stop out.
Frequently asked questions
Educational content only, not financial advice. Leveraged trading carries a high risk of loss. Past performance does not guarantee future results. Broker and prop-firm rules change — always check the current conditions of your provider.
