What Is Leverage?
Leverage lets you control a large position with a small amount of capital. A 30:1 leverage ratio means $1,000 of your money controls $30,000 in the market.
It amplifies both profits AND losses by the same factor.
A Real Example: The Account Wipe
You deposit $1,000. You open a 1 standard lot EUR/USD position (worth $100,000) using 100:1 leverage. Your required margin is $1,000 — your entire account.
EUR/USD moves 1% against you — just 100 pips, a normal daily range.
Your loss: $1,000. Account balance: $0. Margin call triggered. Position closed.
This happens to thousands of traders every week. Trading CFDs is high-risk — most retail accounts lose money. Always verify broker regulation before opening an account.
The Margin Call
A margin call occurs when your account equity falls below the broker's required margin level — typically 50–100% of used margin.
At this point, the broker will either:
1. Warn you to deposit more funds (margin call)
2. Automatically close your largest losing position (stop-out)
Most retail brokers set stop-out at 50% margin level. Pepperstone and IC Markets both close at 50%. IG closes at 100% on CFDs.
ESMA Leverage Limits — Why They Exist
The EU introduced 30:1 leverage caps in 2018 precisely because of the damage uncapped leverage caused retail traders. Before ESMA, brokers offered 500:1 to EU retail clients. Account wipe-outs were catastrophic.
At 30:1 (the EU/UK limit): a 3.3% move against you wipes your position.
At 500:1 (offshore brokers): a 0.2% move wipes your position.
Our recommendation: Never use more than 10:1 effective leverage, regardless of what your broker offers. Professional traders rarely exceed 5:1. The practical tools that keep effective leverage low — the 1% rule, position sizing and where you place the stop — are covered in our guide to forex risk management and position sizing.
This content is educational only and does not constitute financial advice.