Leverage allows you to control a large market position with a small deposit. It amplifies both profits and losses. This guide explains leverage, margin, regulatory limits, and risk management.
What is Leverage?
Leverage in CFD trading refers to the use of borrowed capital from your broker to control a position larger than your actual deposit. It is expressed as a ratio:
- 1:10 — $100 controls $1,000 in market exposure
- 1:30 — $100 controls $3,000 in market exposure
- 1:100 — $100 controls $10,000 in market exposure
- 1:500 — $100 controls $50,000 in market exposure
Leverage allows traders to participate in markets with a small amount of capital, but it equally multiplies losses. A 1% adverse move on a 1:100 leveraged position results in a 100% loss of the margin used.
Higher leverage is not always better. A 2% price move with 1:50 leverage wipes out your entire margin for that trade.
What is Margin?
Margin is the deposit required to open and hold a leveraged position. It is calculated as a percentage of the full position value:
Example:
- You want to buy 1 standard lot of EUR/USD (100,000 units)
- EUR/USD price: 1.0800; full position value = $108,000
- With 1:30 leverage, margin required = $108,000 ÷ 30 = $3,600
- With 1:100 leverage, margin required = $108,000 ÷ 100 = $1,080
If your account balance falls below the required margin level, a margin call is issued, requesting additional funds. If not resolved, positions may be automatically closed (stop-out).
Always maintain sufficient free margin — typically 2–5x the required margin — to avoid being stopped out by normal market fluctuations.
Regulatory Leverage Limits
Major financial regulators cap leverage for retail CFD clients to protect them from excessive losses:
FCA (UK) and ESMA/CySEC (EU) retail limits:
- Major Forex pairs: 1:30
- Minor Forex pairs: 1:20
- Gold: 1:20
- Major indices: 1:20
- Individual stocks: 1:5
- Cryptocurrency CFDs: 1:2
ASIC (Australia) retail limits:
- Major Forex: 1:30
- Commodities (Gold, Oil): 1:20
- Indices: 1:20
- Shares: 1:5
- Crypto: 1:2
Brokers operating in non-restricted jurisdictions (offshore entities) may offer much higher leverage — up to 1:2000 (Exness) or 1:1000 (XM) for professional-style accounts.
