Leverage and margin: why the risk is bigger than you think

With leverage you open a position that is larger than the amount you deposit. The amount you set aside as collateral is called margin. Leverage increases your market exposure, and with it both your potential gain and your potential loss.

A worked example

You open a position of 1 standard lot of EUR/USD (€100,000 position value) at 1:30 leverage.

• Required margin: 100,000 / 30 = €3,333
• If the price moves 1% against you, you lose about €1,000
• That is 30% of your margin, from a price move that can happen in a single day

Leverage turns a small price move into a big one for your account.

EU limits for retail clients

Since 2018, maximum leverage limits apply to retail clients in the EU (ESMA measures, enforced by national regulators):

Underlying	Maximum leverage
Major currency pairs	1:30
Other currency pairs, gold, major indices	1:20
Other commodities and indices	1:10
Individual shares	1:5
Cryptocurrencies	1:2

Two further protection rules apply:

• Margin close-out: if your account value falls below 50% of the required margin, the broker closes positions.
• Negative balance protection: as a retail client you cannot lose more than your account balance.

How to use leverage sensibly

• Use a smaller position than the maximum leverage allows.
• Set your stop-loss in advance and decide how much you are willing to risk per trade.
• Allow for price gaps at weekends or on news, which can cause a stop-loss to be filled at a worse price.

Use our margin calculator to see how much collateral a position requires.