Forex Leverage and Margin Explained: How It Works + Safe Limits (2026)
Leverage lets you control a larger position with a smaller deposit (margin). It magnifies gains and losses, so understanding the math is critical.
Key terms
- Leverage: ratio like 1:10 or 1:30
- Margin: cash required to open the position
- Used margin: total margin locked in open trades
- Free margin: equity minus used margin
- Margin level: (equity / used margin) x 100
Leverage example
Account $1,000 with 1:20 leverage:
- Max position size = $20,000
- A 1% move against you = $200 loss
Required margin formula
Required margin = position size / leverage
Example: $50,000 position with 1:25 leverage requires $2,000 margin.
Safe leverage guidelines
- Beginners: 1:10 to 1:20
- Risk per trade: 0.25% to 1%
- Always use a stop loss
Margin call risk
If equity falls below required margin, brokers can close positions. Avoid this by keeping risk small and not stacking correlated trades.
Practical rules
- Use micro or mini lots
- Trade major pairs with tight spreads
- Reduce size during high impact news
Next Steps
- Position Sizing Guide - Keep risk consistent
- What Is a Pip? - Connect pip value to risk
- Risk Management Guide - Build a safety-first plan
About the Author: Pip Campus Risk Team - Helping traders survive the learning curve.
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Tags
#Leverage#Margin#Forex Basics#Margin Call#Risk Management