GLOSSARY
Leverage
Borrowed buying power that multiplies both sides of a trade — which is exactly why regulators cap it.
Updated 2026-09-05 · Educational content · No broker owns this site
Quick answer. Leverage is borrowed buying power that lets you control a position larger than your deposit, expressed as a ratio such as 30:1. It multiplies profits and losses in the same proportion, so a small price move against you costs a large share of your money.
Leverage is the broker lending you exposure. With 30:1, every $1 of your own money controls $30 of currency. You still own the whole gain or loss on that $30 — which is the part beginners skip past. The ratio does not change your odds or the chart; it changes how much money is attached to each pip of movement.
The money set aside to hold that borrowed exposure is called margin. Leverage and margin are two views of the same number: 30:1 leverage is the same statement as a 3.33% margin requirement.
How much leverage are you allowed?
Retail leverage is not a matter of taste. Two of the three largest retail forex jurisdictions cap it by rule, and the caps are lower than the numbers advertised offshore.
| Where | Rule | Major currency pairs | Other pairs |
|---|---|---|---|
| European Union | ESMA product intervention, 2018 | 30:1 (3.33% initial margin) | 20:1 (5%) |
| United Kingdom | FCA PS19/18, in force 1 Aug 2019 | 30:1 | 20:1 |
| United States | NFA Financial Requirements Section 12 | 50:1 (2% security deposit) | 20:1 (5%) |
The two rulebooks define "major" differently. ESMA means any pair built from two of USD, EUR, JPY, GBP, CAD and CHF. NFA lists GBP, CHF, CAD, JPY, EUR, AUD, NZD, SEK, NOK and DKK.
What does leverage do to a real trade?
Take a $2,000 account and one standard lot of EUR/USD at 1.1000 — $110,000 of notional exposure, $10 a pip.
- Under the 30:1 cap, that trade needs $3,666.67 of margin. The account has $2,000, so the platform refuses the order. The cap has already done its job.
- At 1:500 offshore, the same trade needs $220. It opens. A 189-pip move against you takes the account down to the point where the broker closes it — and 189 pips is an ordinary week in EUR/USD.
What do beginners get wrong about leverage?
The first mistake is reading the ratio as an instruction. Available leverage is a ceiling, not a target. Your actual risk is set by position size and stop distance, and you can trade a 1:500 account at an effective 3:1 by choosing a small lot.
The second is treating a high advertised ratio as generosity. Regulators in the EU, the UK and the US all landed on caps after measuring what happened to retail accounts without them. A broker offering 1:500 to a beginner is usually a broker outside those rulebooks, so the first thing worth checking is the licence, not the ratio — the point we make in is forex a scam?
Related terms
- Leverage · Margin · Equity
- Free margin · Margin level
- Margin call · Stop-out level
- Lot · Pip — the two numbers that decide how fast the margin picture moves
Frequently asked questions
Is 1:500 leverage better than 1:30?
It is not better or worse in itself — it is more rope. Higher leverage lets you open a larger position on the same deposit, so the same price move costs more. What matters far more is who supervises the broker offering it, because 1:500 is only available outside the EU, UK and US retail caps.
Does leverage cost money?
The ratio itself is free, but holding a leveraged position overnight usually incurs a swap or financing charge, and the spread you pay scales with position size. Margin itself is not a charge — it is collateral that returns to your balance when the trade closes.
How do I work out the leverage I am actually using?
Divide the notional value of your open positions by your equity. A $2,000 account holding 0.30 lots of EUR/USD at 1.1000 has $33,000 of exposure, which is 16.5:1 — regardless of the 30:1 or 500:1 written on the account.
Sources
- ESMA — Additional information on the agreed product intervention measures (27 March 2018)
- NFA Financial Requirements Section 12 — Security deposits for forex transactions (amended 18 March 2026)
- FCA PS19/18 — Restricting contract for difference products sold to retail clients (2019)
- FirstPip knowledge base — concepts/leverage-and-margin (sources S007, S010, S011, S013)