Leverage and Margin: What 1:100 Really Means

Leverage and margin are two sides of the same coin — leverage is what a broker offers you, and margin is what you put up in exchange for it.

What leverage means

Leverage is expressed as a ratio, like 1:100. It means that for every $1 of your own money, you can control $100 worth of currency. With $500 and 1:100 leverage, you could open a position worth $50,000.

What margin means

Margin is the portion of your own funds a broker sets aside as collateral to open and maintain a leveraged position. It isn’t a fee — it’s your money, temporarily locked as security while the trade is open, and it’s released when you close the position.

The trade-off

Leverage amplifies both gains and losses in equal proportion. A 1% favorable move on a leveraged position can produce a much larger percentage return on your actual deposit — but a 1% move against you does the same in reverse, which is why high leverage is riskier for beginners.

Leverage limits vary by regulator

Regulators in stricter jurisdictions, like the FCA or ASIC, cap leverage for retail clients (often around 1:30 for major forex pairs) specifically to limit this risk, while some offshore brokers offer much higher leverage.

Key takeaway

Leverage lets you trade positions larger than your account balance, but it doesn’t change the underlying risk of the market — it only changes how much that risk is magnified relative to your deposit.