Trading with leverage: Impact on your funds

2025-12-24 23:08:16

Abstract generation in progress

What is Leverage? Basic Understanding You Need to Know

In the world of trading currencies, leverage refers to the facility provided by brokers that allows traders to control positions larger than their actual capital. For example, if you want to control a position of $100,000, the broker might deduct only $1,000 from your account. The remaining amount is borrowed from the broker, which is called (margin).

The relationship between leverage and margin is straightforward: the higher the leverage, the less margin required proportionally. Brokers often offer leverage ranging from 1:1 to 1:500, depending on each company’s policy.

Leverage	Margin Required
1:20	5%
1:50	2%
1:100	1%
1:200	0.5%
1:500	0.2%

Calculation Methods and Real Examples

Suppose you want to open a position with leverage of 1:100 or 1:200 while the EUR/USD trading value is 1.26837.

Scenario 1: Using 1:100

If you trade 1 lot (100,000 units), the value is 100,000 × 1.26837 = $126,837.
Margin required: $126,837 × 1% = $1,268.37.

Scenario 2: Using 1:200

If you trade 1 lot (100,000 units), the value is 100,000 × 1.26837 = $126,837.
Margin required: $126,837 × 0.5% = $634.19.

Impact on Profit and Loss

This is the critical part—leverage can significantly amplify percentage returns.

Suppose EUR/USD increases by 3 pips from 1.26837 to 1.26867. The dollar profit will be the same ($130) in both cases:

	Leverage 1:1	Leverage 1:200
Margin	$126,837	$634.19
Profit	$130	$130
Return Percentage	0.1%	20%

Similarly, if the price drops by 3 pips to 1.26807, the loss will show the same but in the opposite direction, meaning the $130 loss will become -20% of your used capital, not just -0.1%.

Summary: A Double-Edged Sword

Leverage is a powerful tool for traders, capable of magnifying profits exponentially. However, it can also amplify losses equally. Choosing the appropriate leverage depends on individual risk tolerance and experience. Brokers offer various leverage options for traders to select according to their preferences. A thorough understanding of leverage and margin is essential for effective risk management.

View Original

This page may contain third-party content, which is provided for information purposes only (not representations/warranties) and should not be considered as an endorsement of its views by Gate, nor as financial or professional advice. See Disclaimer for details.