Leverage and margin explained: margin call, stop-out, limits

Leverage in one sentence

Leverage lets you open a position larger than your deposit: with 1:30, each 1,000 of margin holds a position worth 30,000. Gains and losses are calculated on the full position, so the same price move hits your account 30 times harder than it would without leverage.

Margin, margin call and stop-out

The margin is the part of your balance the broker sets aside to keep a position open. Your margin level compares your equity with the margin in use. If losses push it down:

• a margin call warns you at a level set by the broker;
• a stop-out closes positions automatically at a lower level, starting with the largest loss.

Both levels differ between brokers and account types. The margin calculator shows how much margin a trade needs.

Higher leverage is not cheaper trading

Leverage does not change the cost of a trade; it changes how much you can lose before the stop-out. Size positions from the risk you accept on each trade — the position size calculator does that — and treat the leverage cap as an upper limit, not a target.

Limits set by regulators

Regulators in several regions cap leverage for retail clients. In the European Union, ESMA agreed in March 2018 on limits “from 30:1 to 2:1, which vary according to the volatility of the underlying”, including “30:1 for major currency pairs”, “20:1 for non-major currency pairs, gold and major indices”, “5:1 for individual equities and other reference values” and “2:1 for cryptocurrencies”. The same measures introduced a margin close-out rule “at 50% of minimum required margin” and negative balance protection on a per account basis.

Outside the EU the caps depend on the regulator of the entity that holds your account, which is why the same broker can offer different leverage in different countries. Our broker reviews list the maximum leverage each licensed entity publishes.

Negative balance protection

In a very fast market a stop-out can fill below the stop level, leaving a negative balance. With negative balance protection the broker resets the balance to zero, so you cannot lose more than you deposited. Check whether the entity you would open an account with offers it.