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Market Foundations + Forex Mechanics · The Basics

Leverage and margin: the math

Calculate required margin and understand liquidation distance.

3 min read+25 XPLesson 5 of 110
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Market Foundations + Forex Mechanics

The Basics

Lesson 5 of 1105%
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Lesson 5 of 110Market Foundations + Forex MechanicsThe Basics

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Calculate required margin and understand liquidation distance.

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Leverage is borrowing power

Leverage is the borrowing power your broker gives you. If leverage is 50:1, you can control $50 of position for every $1 of your own money required as margin. Margin is the deposit your broker holds while the trade is open. The formula is simple: margin equals position size divided by leverage.

A small $20 block lifts a big $1,000 block on a seesaw marked 50:1, showing that leverage lets small margin control a bigger position whose gains and losses are full size.P&L still moves on the full$1,00050:1$20$1,000?
Wick saysAt 50:1, a $1,000 position locks $20 of margin, but P&L moves on all $1,000.

Example: you have a $500 account and open 1 micro lot of EUR/USD, which is about a $1,000 position. With 50:1 leverage, required margin is $1,000 divided by 50, or $20. That does not mean your risk is only $20. It means $20 is locked as margin while the position's P&L moves with the market.

A green fact card says profit and loss moves on the full position while a coral myth card says risk is only the margin, teaching that margin is a deposit, not a risk limit.FactP&L moves on thefull positionMythMy risk is only the$20 margin
Wick saysLeverage makes a trade easier to open. It does not make it safer.

Higher leverage lowers the margin requirement, which makes larger positions possible. That is the danger. Liquidation distance depends on your equity, used margin, broker close-out rules, spread, and open losses. In the U.S., retail forex leverage is commonly capped at 50:1 on major pairs and 20:1 on minors. In the EU and UK, retail caps commonly sit around 30:1 on majors. Other jurisdictions can be higher, so verify before sizing.

Two cards compare common retail leverage caps, about 50:1 on majors in the U.S. and about 30:1 in the EU and UK, teaching that rules change by place.U.S.Often 50:1majors, 20:1minorsEU and UKOften about30:1 on majors
Wick saysLeverage limits differ by country, so check the rules before you size a trade.

Recap: margin equals position size divided by leverage. Leverage changes the deposit needed to open a trade, not the need to control risk.

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0 / 3 answered

1. A $1,000 position at 50:1 leverage requires how much margin?

2. What is the main risk of higher leverage?

3. Which formula calculates required margin?

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