Leverage affects the margin required to open and maintain a position. Higher leverage generally reduces the required margin for products that use leverage-based calculations, but it does not change the profit or loss per pip for the same instrument and position size. Using higher leverage to open larger positions increases trading exposure and potential losses.
Why can higher leverage increase trading risk
Higher leverage allows larger positions to be opened with the same account funds. Larger positions generate greater gains or losses for each price movement.
For example, with a USD 1,000 account:
- A 0.90-lot EUR/USD position loses approximately USD 180 after a 20-pip adverse move.
- A 4.50-lot position loses approximately USD 900 after the same move.
The additional risk comes from the larger position size. These examples exclude trading costs and assume the positions remain open throughout the move.
How is margin calculated using leverage
For a product using a leverage-based calculation:
- Required margin =
(Contract size × Lot size × Margin Percentage) ÷ Leverage - Position value depends on the instrument, contract size, lots, and price where applicable.
- Express the margin factor as a decimal: 100% = 1.
- Convert the result into your account currency where required.
What does a leverage ratio of 1:500 mean
A leverage ratio of 1:500 means that each USD 1 allocated as margin can support USD 500 of market exposure, subject to the product’s margin requirements.
- Margin is the amount required to support a position.
- It is not the maximum amount you can lose.
- Product-specific margin settings or temporary leverage restrictions may apply.
Does leverage change my profit or loss per pip
No. For the same instrument and position size, profit or loss per pip remains the same regardless of leverage.
For example, buying 1 standard lot of EUR/USD at 1.1000:
Leverage | Required margin | Profit/Loss per Pip |
|---|---|---|
1:100 | $1,100 USD | $10 USD / pip |
1:500 | $220 USD | $10 USD / pip |
This example assumes a USD account and a 100% margin factor, excluding trading costs and other adjustments.
Does leverage change the margin call or stop-out thresholds
No. The account thresholds remain:
- Margin call: 50.00%.
- Stop-out: 20.00%.
Margin Level = Equity ÷ Used Margin × 100%.
- Opening larger positions increases sensitivity to price movements.
- Changing leverage can change used margin and therefore the margin level.
- Lowering leverage may increase margin requirements and bring the account closer to these thresholds.
What happens if I change leverage while positions are open
For positions affected by the leverage change:
- Margin requirements are recalculated.
- Free margin and margin level may change.
- Lower leverage generally requires more margin.
- The change does not itself resize or close positions, but insufficient margin may trigger stop-out.
Check your available funds before requesting lower leverage.
What should I check before trading with leverage
- Choose position sizes according to your risk limits.
- Check the instrument’s applicable leverage and margin requirements.
- Maintain sufficient free margin for market fluctuations.
- Review temporary or Dynamic Leverage conditions.
- Monitor margin level, particularly before changing leverage.
Risk Warning
Trading Contracts for Difference ("CFDs") and other leveraged financial derivatives involve a high degree of risk and may not be suitable for all investors. Leverage can magnify both gains and losses, and you may lose all of your invested capital. You should ensure that you fully understand the risks involved before trading.
The information provided on this website is for general information purposes only and does not constitute investment advice, a recommendation or an offer or solicitation to buy or sell any financial instrument.