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Leverage and Margin: What Your Broker Is Really Lending You

Leverage lets you open a bigger trade than your deposit, and margin is the money set aside to keep it open. This guide puts both in plain dollars, with one gold trade from start to stop-out.

Written By

Karolina Hansen

Updated 26/10/2026 · 7 min read

ForexGold

Key Takeaways

Leverage lets you control a position worth much more than the money you put up.
Margin is the part of your balance the broker sets aside to keep a trade open. Free margin is what's left over.
Margin level is equity divided by used margin. If it falls far enough, you get a margin call and then a stop-out.
Your risk on a trade comes from your lot size and your stop-loss distance. Leverage only changes how much margin is locked up.
If you size each trade with a stop-loss, you should never get anywhere near a stop-out.

Leverage is one of the first words you'll see when you open a trading account, and one of the most misunderstood. People hear 1:500 and think it means 500 times the profit. Or they hear it's dangerous and assume lower leverage makes a trade safer. Neither is quite right. Once you see the numbers on one trade, it's much less mysterious.

What Leverage Is

Leverage means you can open a position that's bigger than the money you put down. With 1:100 leverage, every $1 of margin controls $100 of position. Take gold at about 4,000. One standard lot is 100 ounces, so 0.10 lots is 10 ounces, worth about $40,000. You don't need $40,000 in your account to open it. At 1:100 the broker asks you to set aside 1% of that, which is $400.

Margin needed to open 0.10 lots of gold at 4,000

1:20 leverage$2,000

1:50 leverage$800

1:100 leverage$400

1:500 leverage$80

Illustrative example. Position value is about $40,000 (10 oz × $4,000). Margin = position value ÷ leverage.

The leverage you can use depends on your broker and where you live. Some regulators cap it for retail traders. In the UK and EU, for example, retail leverage on gold is limited to 1:20.

The Four Margin Words

Margin (used margin)

The money set aside to keep your open trades running. It isn't a fee. You get it back when the trade closes.

Free margin

Your equity minus used margin. It's what's available to cover losses or open new trades.

Equity

Your balance plus or minus the profit or loss on open trades, right now.

Margin level

Equity ÷ used margin × 100. It's shown as a percentage on most platforms, and it's the number to watch.

Margin call

A warning

Your margin level has dropped to a set point, often 100%
You usually can't open new trades
Nothing is closed yet

Best for: Time to act before it gets worse

Stop-out

Forced closing

Your margin level has dropped further, often to 50% or lower
The broker starts closing your trades, usually the biggest loser first
It happens automatically

Best for: The thing proper sizing keeps you away from

One Gold Trade, Start to Stop-Out

Say you deposit $2,000 with 1:100 leverage and buy 0.10 lots of gold at 4,000 with no stop-loss. Used margin is $400. Equity is $2,000, so free margin is $1,600 and margin level is 500%. On 0.10 lots, every $1 move is worth $10. In this example the broker's margin call is at 100% and stop-out is at 50%. Check your own broker's levels, because they vary.

Gold price	Equity	Margin level
4,000 (you just opened)	$2,000	500%
3,990 (down $10)	$1,900	475%
3,950 (down $50)	$1,500	375%
3,840 (down $160)	$400	100%, margin call
3,820 (down $180)	$200	50%, stop-out

Margin level as gold falls, 0.10 lots on a $2,000 account

At 4,000500%

At 3,990475%

At 3,950375%

At 3,840 (margin call)100%

At 3,820 (stop-out)50%

Illustrative example. Costs not included. Margin call and stop-out levels differ between brokers.

Look at what happened there. The broker closed the trade after a $1,800 loss, which is 90% of the account. Nothing about leverage forced that loss. It happened because there was no stop-loss, so the margin system became the stop.

Your Risk Comes From Size, Not Leverage

Now take the same trade with a stop-loss at 3,990, $10 below entry. On 0.10 lots that's a $100 loss if it's hit. Change the leverage and see what happens to that number.

Loss if a $10 stop is hit, 0.10 lots of gold

1:20 leverage−$100

1:100 leverage−$100

1:500 leverage−$100

Illustrative example. The loss is lot size × stop distance. Leverage only changes how much margin is set aside.

It's $100 every time. What high leverage really does is let you open a much bigger position with the same deposit. On a $2,000 account at 1:500 you could open over two full lots of gold, where a $10 move is more than $2,000. That's where people get hurt: by the lot size they choose once all that margin is available. Decide your size from your stop-loss and the amount you're willing to lose, and leverage becomes a background detail.

What higher leverage gives you

Less money locked up as margin
More free margin to absorb normal swings

What it tempts you into

Opening positions far too large for your account
Forgetting the real dollar value of each move
Reaching a margin call quickly if you skip the stop-loss

Habits That Keep You Away From a Margin Call

Put a stop-loss on every trade before you open it.
Work out your lot size from the stop distance and the dollar amount you're prepared to lose.
Check what a $1 move is worth at your size before you click buy or sell.
Keep an eye on margin level. If it's falling towards your broker's margin call, you're too big.
Find out your broker's margin call and stop-out levels and write them in your plan.

I'd practise this on a demo account first. Open a trade, watch the margin numbers move and work out the margin level by hand. Ten minutes of that is worth more than any explanation.

Fill in your stop distance and the amount you're willing to lose, and get your lot size.

Download the free Position Size Worksheet

Use your free dashboard to plan each day, journal every trade and move on to the next lesson.

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Frequently Asked Questions

Leverage on its own doesn't change the loss on a trade with a stop-loss. The problem is that high leverage lets you open positions far too large for your account. If you size each trade from your stop, the leverage setting matters much less.

No. Margin is money set aside from your balance while a trade is open. It's released when you close the trade. Your costs are things like the spread, commission and overnight swap.

A margin call means your open trades are too large for your equity. Closing or reducing positions raises your margin level. Then look at why it happened, which is usually missing stop-losses or oversized trades.

It depends on your broker and where you live. Many regulated brokers offer negative balance protection for retail clients, but not all do. Check your broker's terms.

Educational content only, not financial advice. Trading involves risk, and past performance does not guarantee future results.

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