A trader with 1,000 units of margin on a 1:100 account can hold a position worth 100,000. That ratio is the headline on every account comparison page, and it is close to the least useful number on it. The figure that decides whether the account survives is the money value of one price point multiplied by the size held, measured against the balance behind it.
The ratio is a permission, not a plan
Leverage is the maximum notional exposure a broker will finance against a given balance. At 1:30, a 5,000 balance supports 150,000 of exposure. At 1:500 the same balance supports 2.5 million. Neither number obliges anyone to use the ceiling, and traders who last past their first year usually operate far below it.
The language causes the damage. People say "I trade 1:500" as if it described their risk appetite. It describes their broker's margin policy. Risk on any single trade comes from two things you choose yourself: how many lots you hold and how far away the stop sits. A 0.10 lot EURUSD position with a 30 pip stop loses the same amount on a 1:30 account as on a 1:500 account. The only difference is how much of the balance is locked while the trade runs.
Required margin is a deposit, and it is arithmetic
Required margin equals notional value divided by the leverage ratio, converted into the account currency. One standard lot of EURUSD carries a notional value of 100,000 euro, so the deposit works out like this.
| Leverage | Margin for 1 lot EURUSD | Free balance on a 5,000 account |
|---|---|---|
| 1:30 | 3,333 EUR | Roughly one lot, and little else |
| 1:100 | 1,000 EUR | Room for four or five lots |
| 1:200 | 500 EUR | Room for around ten lots |
| 1:500 | 200 EUR | Room for twenty five lots |
Read the right-hand column again. High leverage does not make each lot more dangerous. It removes the natural brake that a small balance would otherwise apply, because the account never refuses the order. That is the real mechanism behind blown accounts, and it explains why the same person can trade for years at 1:30 and lose everything in a fortnight at 1:500.
The maths that ends accounts
Take the 1:100 row and suppose the whole balance is committed. Ten lots of EURUSD against 5,000 of margin means the position moves by roughly 100 currency units per pip. A 50 pip move against the trade is 5,000, the entire balance. Fifty pips on EURUSD is an ordinary Tuesday.
Losses also compound in a direction that flatters nobody. A 20 percent drawdown needs a 25 percent gain to recover. A 50 percent drawdown needs 100 percent. Once an account is down two thirds, the trader has to triple what is left simply to return to the starting line, and the pressure of that arithmetic is what produces oversized revenge positions.
Before the balance reaches zero, the broker's stop-out engine intervenes. When margin level falls below the stop-out threshold, open positions are closed automatically, usually the largest loser first. Understanding that sequence in advance matters more than any indicator, which is why margin calls and stop-outs deserve their own reading before a live deposit.
Leveraged trading carries a high risk of loss. Negative balance protection, where it applies, limits losses to the deposited funds, but it is a regulatory feature of certain jurisdictions, not a universal one. Check the account terms rather than assuming.
Borrowed exposure has a running cost
Holding a leveraged CFD position past the daily rollover triggers a financing adjustment. On currency pairs it is derived from the interest rate differential between the two currencies plus the broker's markup, and it can be a credit or a debit depending on direction. On indices and commodities it usually shows up as a straightforward financing charge. Traders who hold for weeks find that swap charges quietly consume a meaningful part of the expected move, particularly on pairs with wide rate gaps.
The cost scales with notional size, not with margin. A 1:500 account holding ten lots pays exactly what a 1:30 account holding ten lots pays. Leverage changed the deposit, never the exposure being financed.
Sizing when the ceiling is high
The working method is to ignore the ratio entirely and start from loss tolerance. Decide the maximum you accept losing on one idea, expressed as a percentage of the balance. Convert that into money. Divide by the stop distance in pips to get the pip value you can afford, then convert the pip value into lots. The leverage ratio only ever tells you whether the resulting order will be accepted, which for a sensibly sized trade it always will be.
Worked through, it takes a minute. A 5,000 balance, a one percent limit and a 25 pip stop gives 50 of acceptable loss and 2 per pip of affordable exposure, which is 0.20 lots on EURUSD. Required margin on that order is 200 at 1:100 and 40 at 1:500. Both are trivially affordable, both lose the same 50 if the stop is hit, and the account is nowhere near a margin problem in either case. The ratio only became relevant as a final check that the platform would accept the order.
Regulators arrived at the same conclusion from the other side. The ESMA leverage caps exist because retail account data showed size, rather than direction, was the common factor in losses. Firms outside those regimes still advertise 1:500 and above, which is a marketing decision about client acquisition rather than a statement about what is survivable.
If you are choosing between two accounts and one offers a higher ceiling, treat the extra headroom as capacity you have no plan to use. That is the honest way to hold it.
"Nobody ever lost an account because the leverage was 1:500. They lost it because the platform let them press buy on a size they would never have typed by hand."
— Alex Onta, Executive Director, SINGUARD
Key Takeaways
- Leverage sets the margin deposit and the maximum size a broker will accept. It does not change the loss on a trade you have already sized.
- Required margin is notional value divided by the ratio, so one EURUSD lot needs about 3,333 euro at 1:30 and 200 euro at 1:500.
- Financing costs follow notional exposure, so a high ratio saves margin and saves nothing on overnight swap.
- Size from the stop distance and an accepted loss per trade, then check the ratio last to confirm the order fits.
Frequently Asked Questions
Does higher leverage make a trade riskier?
Not by itself. Risk on a single trade comes from position size and stop distance. Higher leverage lowers the margin locked against the position, which frees balance and makes oversized positions possible, so in practice it changes behaviour rather than the arithmetic of one trade.
How much margin does one standard lot need?
Divide the notional value by the leverage ratio. One standard lot of EURUSD has a notional value of 100,000 euro, so it requires roughly 3,333 euro at 1:30, 1,000 euro at 1:100 and 200 euro at 1:500, converted into the account currency.
Why do European brokers cap leverage at 1:30?
ESMA product intervention measures set retail leverage caps by asset class, with the top tier applying to major currency pairs and lower caps for indices, gold, other commodities and crypto. Firms authorised in the EU and the UK apply those caps to retail clients, while professional clients may qualify for higher limits.