What Is Leverage?
Leverage allows you to control a large position with a relatively small amount of capital (called margin). It's expressed as a ratio — 1:100 means you control $100 for every $1 of your own money.
The Mathematics of Leverage
Example: Trading EUR/USD with 1:100 Leverage
- Margin Required: $1,000
- Each pip movement = $10
- A 50-pip gain = $500 (50% return on margin)
- A 50-pip loss = $500 (50% loss on margin)
Available Leverage by Asset Class
| Asset Class | Typical Leverage | Margin Required |
|---|---|---|
| Forex Majors | Up to 1:500 | 0.2% |
| Forex Minors | Up to 1:200 | 0.5% |
| Indices | Up to 1:200 | 0.5% |
| Commodities | Up to 1:100 | 1% |
| Stocks | Up to 1:20 | 5% |
| Crypto | Up to 1:10 | 10% |
The Golden Rules of Leverage
Rule 1: Never Use Maximum Leverage
Just because you can use 1:500 doesn't mean you should. Experienced traders typically use effective leverage of 1:10 to 1:20.
Rule 2: The 1% Rule
Never risk more than 1% of your total account balance on a single trade. With a $1,000 account, your maximum loss per trade should be $10.
Rule 3: Always Use Stop Losses
A leveraged position without a stop loss is a ticking time bomb. Set your stop loss before entering every trade.
Rule 4: Understand Margin Calls
When your account equity falls below the maintenance margin level, the broker may close your positions to prevent further losses. At 10xTrade, we provide margin warnings at multiple levels so you can act before a margin call occurs.
Rule 5: Start Low, Scale Up
Begin with lower leverage and increase only as your strategy proves profitable over many trades.
Practical Position Sizing Formula
Position Size = (Account Balance × Risk %) / (Stop Loss in Pips × Pip Value)
Example:
This systematic approach ensures you never over-leverage, regardless of how confident you feel about a trade.