Leverage and margin explained with examples

What margin is

It is the collateral the broker locks from your account while the position is open. It is calculated as the position value divided by leverage, and it is released when you close.

Example with EUR/USD

One lot of EUR/USD with the price at 1.10 has a value of 110,000 USD. With 1:100 leverage the margin is 1,100 USD; with 1:30 it is 3,666.67 USD; with 1:500 it is 220 USD.

Leverage does not change the pip value

On that same lot, each pip is worth 10 USD at any leverage. What changes is how much margin is locked and how many positions you can open. High leverage does not make a trade more dangerous by itself; what makes it dangerous is opening lots that are too large for your account.

Margin level, margin call and stop out

Margin level is equity ÷ used margin × 100. When it falls below the broker’s threshold (often 100%) you get a margin call, and if it keeps falling to the stop-out level (for example 50%) the broker closes positions automatically.

An over-leverage example

With a 1,000 USD account and 1:500 leverage you can open a full lot of EUR/USD (margin of 220 USD). But a 100-pip move against you is a 1,000 USD loss: the entire account. Leverage let you open the position; risk management should have stopped you from doing so.

Calculate the margin and pip value of your position with the margin calculator before entering.