Leverage forex
Family III · Risk
Not to be confused with leverage, forex leverage, maximum leverage.
Leverage forex describes the use of borrowed capital, supplied by a broker as margin, to control a foreign-exchange position larger than the account's own funds. It is expressed as a ratio, such as 50:1 or 100:1, and it magnifies both gains and losses relative to the deposit. The maximum ratio available is not universal and varies by jurisdiction, broker and account type.
How the ratio works
Leverage is quoted as a ratio of position value to required margin. A ratio of 100:1 means that 1 unit of account controls 100 units of notional currency. Margin is the reciprocal: at 100:1, the margin requirement is 1% of notional value.
Leverage does not change the size of a price move; it changes how much of the trader's own capital is committed. Profit and loss are calculated on the full notional position, so a small adverse move can consume a large share of the deposit.
Worked example
Regulatory variation
Maximum leverage for retail forex clients is set by local regulators and differs between countries. Some authorities cap retail leverage at low ratios, while others permit higher ratios or apply different limits to professional clients. Brokers may also offer lower leverage than the regulatory ceiling.
Because these limits vary, no single number applies universally. Traders should check the rules of the regulator that supervises their account.
Often confused with
- leverage
- Leverage is the general concept of using borrowed capital to increase exposure in any market, whereas leverage forex is that concept applied specifically to currency pairs; the visible sign is the presence of a currency pair or forex margin context.
- forex leverage
- Forex leverage is the same mechanism as leverage forex, but the term is often used when the ratio is stated alongside a specific broker or regulatory limit; the visible sign is a quoted ratio attached to a forex account rather than a general explanation.
- maximum leverage
- Maximum leverage is the highest ratio a broker or regulator permits for a given account, while leverage forex is the ratio actually used on a position; the visible sign is the word maximum or a stated cap.