Trading Fundamentals
How leverage amplifies exposure, how margin requirements work, and what margin calls and stop-outs mean for your account.
Leverage allows participants to control a position larger than the capital required to open it. It is usually expressed as a ratio, for example, 1:100 means that for every $1 of required margin, a participant can hold $100 of market exposure. Leverage does not change the size of price movements; it changes how much those movements affect account equity.
Margin is the amount of funds required to open and maintain a leveraged position. It is not a fee, but funds set aside while the trade remains open. The required margin depends on the size of the position, the instrument being traded, and the leverage available.
Used margin is the amount currently allocated to maintain open positions. Free margin is the amount available after used margin is accounted for and may be used to open new trades or absorb losses on existing positions. Maintaining sufficient free margin can help reduce the risk of margin calls or stop-outs during volatile market conditions.
Margin level is account equity divided by used margin, expressed as a percentage. It is commonly used to assess how much margin buffer remains in the account. A higher margin level generally indicates more available equity relative to used margin, while a lower margin level may indicate increased risk of a margin call or stop-out.
If the market moves against open positions and the account margin level falls below the required threshold, a margin call may occur. If the margin level falls below the stop-out threshold, one or more open positions may be closed automatically according to the platform's stop-out rules.
Higher leverage increases market exposure relative to the margin required, which can increase both potential gains and potential losses. Even small market movements can have a larger effect on account equity when higher leverage is used. This is why leverage should be understood carefully before placing leveraged trades.
Leverage should be considered alongside position size, margin requirements, and overall account risk. Some participants limit risk per trade to a small percentage of account equity, but the appropriate level depends on account size, market conditions, and individual risk tolerance. Stop-loss orders, margin monitoring, and disciplined position sizing can help manage the risks associated with leveraged trading.
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