Leverage
Also known as: margin leverage, leverage ratio, gearing, 1:100 leverage
What is it?
Leverage is the ratio that decides how much of your own money a broker locks as margin to hold a position, so 1:100 leverage means roughly 1,000 dollars of margin controls a 100,000 dollar position. The common misreading is that leverage multiplies losses. It does not.
| Leverage | Margin locked for 1 standard lot | Free margin left on $5,000 | Loss on a 25-pip adverse move |
|---|---|---|---|
| 1:30 | $3,617 | $1,383 | $250 |
| 1:100 | $1,085 | $3,915 | $250 |
| 1:500 | $217 | $4,783 | $250 |
What you lose is the distance price travelled against you multiplied by your position size, and neither of those numbers changes when the leverage ratio changes. One standard lot of EUR/USD losing 25 pips costs 250 dollars at 1:30, at 1:100 and at 1:500 alike. Only the margin locked to hold it differs, at 3,617, 1,085 and 217 dollars respectively.
What higher leverage actually changes is the free-margin cushion, and the temptation. With 1,085 dollars locked on a 5,000 dollar account, roughly 3,900 dollars of equity can be lost before a stop-out; at 1:30 the same trade locks 3,617 and leaves under 1,400. Leverage buys room to hold a position, and it also makes an oversized one possible, which is the mechanism by which it gets blamed for losses that lot size actually caused.
Why it matters: Leverage sets the margin a position locks rather than the size of your loss, so treating it as a risk dial instead of a sizing constraint is what empties accounts.
Margin required = (lot size x contract size x price) / leverage ratio
Leverage decides how much free margin a position leaves, which is what determines whether an ordinary drawdown turns into a forced stop-out.
Real-world example
One standard lot of EUR/USD at 1.0850 locks 3,617 dollars of margin at 1:30 but only 217 at 1:500, while a 25-pip adverse move costs exactly 250 dollars in both cases.
How SignalBots handles it
SignalBots states entry and stop as prices, so the position size you choose - not the leverage your broker offers - decides the money at risk on every signal you take. See /risk-warning.
Pro tip
Treat leverage as a ceiling on how large a position you are able to open, and let your risk-per-trade rule decide how large you actually open.
Common pitfalls
Moving to a higher-leverage account and raising lot size to match, which increases real risk when the leverage change on its own would not have.
Frequently asked questions
Does higher leverage mean higher risk?
Only indirectly. The ratio changes margin, not loss per pip. It raises risk when a trader spends the freed-up margin on a bigger position, which is a sizing decision rather than a leverage one.
What leverage should I use?
High enough that margin never constrains a properly sized position, low enough that an oversized one is impossible. For accounts risking 1 to 2 percent per trade, anything from 1:30 upward is usually sufficient.
Why do regulators cap leverage at 1:30?
Because freed margin at high ratios lets inexperienced traders open positions far larger than their account supports. The cap constrains position size indirectly by making margin expensive.
What is a margin call or stop-out?
When equity falls below a set percentage of the margin locked, the broker warns you and then closes positions automatically. Higher leverage locks less margin, so the stop-out level sits further away.
Does leverage affect an automated strategy differently?
It affects how many simultaneous positions the strategy can hold before margin runs out. A grid or hedging bot needs the headroom; a single-position strategy rarely notices. Your capital is at risk.
Trading involves substantial risk of loss. Historical and backtested results do not guarantee future performance. Read the full risk warning.
