What Is Leverage in Forex? How Margin and Leverage Work (With Examples)
Quick answer: Leverage lets you open a trade bigger than your money. With 1:100, every 1 dollar of your money controls 100 dollars of trade. The money the broker holds for the trade is the margin: margin = trade size ÷ leverage. Leverage does not change your profit or loss per pip. It only changes how much margin is locked.
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How margin is calculated
- Trade size (position value) = lots × contract size × price.
- One standard lot in forex is 100,000 units. For gold (XAUUSD), one lot is usually 100 ounces (check your broker).
- Margin = position value ÷ leverage.
Example: 1 lot EURUSD at 1.0800
Position value = 1 × 100,000 × 1.0800 = 108,000 USD.
| Leverage | Margin needed |
|---|---|
| 1:30 | 3,600 USD |
| 1:100 | 1,080 USD |
| 1:200 | 540 USD |
| 1:500 | 216 USD |
Example: 0.10 lot gold at 4,100 USD
Position value = 0.10 × 100 oz × 4,100 = 41,000 USD. With 1:100 the margin is 410 USD; with 1:500 it is 82 USD. The price here is only an example.
Why high leverage is risky
- Higher leverage makes it easy to open trades that are too big for your account.
- Your profit or loss depends on the lot size, not the leverage. A 1 lot EURUSD trade gains or loses about 10 USD per pip whether the leverage is 1:30 or 1:500.
- If losses eat your free margin, the broker sends a margin call and can close your trades (stop out).
- Choose the lot size from your risk first. See how to calculate lot size.
Trading forex and gold with leverage carries a high risk of losing money. In Saudi Arabia, check that a broker is licensed by the Capital Market Authority (CMA). This guide explains the math only and is not investment advice.
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Frequently asked questions
What does leverage 1:100 mean?
Each 1 dollar of your margin controls 100 dollars of trade. A 100,000 USD position needs 1,000 USD margin.
How do I calculate margin in forex?
Margin = lots × contract size × price ÷ leverage. For 1 lot EURUSD at 1.08 with 1:100: 108,000 ÷ 100 = 1,080 USD.
Does higher leverage increase profit?
Not by itself. Profit per pip depends on the lot size. Higher leverage only lowers the margin, which lets you open bigger trades and take more risk.
What is a margin call?
A warning that your account equity is close to the margin required. If it falls further, the broker can close your trades.
What leverage is good for beginners?
Lower leverage such as 1:10 to 1:30 limits how big a trade you can open, which protects a small account. Always size trades by risk.
Official sources
This guide explains the general rules. It is not legal advice.