Leverage is the use of borrowed capital to control a position larger than your account balance allows. A 100:1 leverage ratio means $1,000 in your account controls a $100,000 position. Leverage magnifies both profits and losses proportionally — a 1% move in your favor at 100:1 leverage doubles your capital; a 1% move against you wipes it out.
How Leverage Works
Your broker holds a portion of your capital as margin (collateral) while a trade is open. The required margin = Position size ÷ Leverage. At 50:1 leverage, a $100,000 EUR/USD position requires $2,000 in margin. At 100:1, the same position requires $1,000.
The remaining capital in your account — above the required margin — is your free margin. If losses eat into your margin, you'll receive a margin call requiring you to deposit more funds or reduce positions.
Leverage in Different Markets
- Forex: Regulated brokers in the US offer max 50:1 on major pairs; EU brokers offer max 30:1 under ESMA rules. Offshore brokers may offer 500:1 or higher.
- Crypto: Centralized exchanges like Binance offer up to 125:1 on some pairs. Most experienced traders use 3–5x maximum.
- Stocks: Typically 2:1 for overnight positions in the US (4:1 intraday for pattern day traders).
The Real Risk of High Leverage
High leverage availability doesn't mean high leverage is appropriate. The position size that keeps your dollar risk at 1% of account is determined by your stop loss distance — not by how much leverage you have access to. A trader with 100:1 leverage who still risks only 1% per trade is no more at risk than one with 5:1 leverage doing the same thing. The problem occurs when leverage is used to take positions larger than risk management allows.