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| Leverage allows you to gain exposure to a larger position while providing a smaller amount of funds as margin. It is commonly expressed as a ratio, such as 1:100. For example, with 1:100 leverage, $1 of margin could provide exposure to $100 of the underlying position, subject to the broker’s terms and applicable requirements. |
Leverage can increase both potential gains and potential losses. Because relatively small price movements can have a larger effect on the funds used as margin, leveraged CFD trading involves significant risk.
Leverage is one of the first concepts new traders encounter and is often misunderstood. Understanding how leverage works, how it relates to margin, and how gains and losses are calculated can help you better understand the risks of leveraged trading. The examples below are for illustration only and do not represent a prediction of future results.
What is leverage?
Leverage allows you to gain exposure to a larger position while providing a smaller amount of funds as margin. It is expressed as a ratio, such as 1:10, 1:100 or 1:500. The second number indicates the amount of market exposure available relative to the margin required.
For example, with 1:100 leverage, $1,000 of margin could provide exposure to a position worth $100,000, subject to the broker’s terms and applicable requirements. Leverage can increase both potential gains and potential losses, meaning that relatively small market movements can have a significant effect on your account.
Leverage and margin: two sides of the same coin
The deposit you put down to open a leveraged trade is called the margin. Leverage and margin are inversely related: the higher the leverage, the less margin you need. At 1:100 leverage, your margin is just 1% of the position; at 1:500, it’s only 0.2%. Here’s how the same $1,000 stretches at different leverage levels:
| Leverage | Margin required | Exposure from $1,000 |
| 1:10 | 10% | $10,000 |
| 1:30 | 3.3% | $30,000 |
| 1:100 | 1% | $100,000 |
| 1:500 | 0.2% | $500,000 |
A worked example: leverage in action
The amount of funds required to open a leveraged position is called the margin. Leverage and the margin requirement are inversely related: generally, the higher the leverage, the lower the margin required for a given position size.
For example, at 1:100 leverage, the margin requirement would be 1% of the position value. At 1:500 leverage, it would be 0.2%, subject to the broker’s terms and applicable requirements.
The table below illustrates how the margin required for the same $100,000 position varies at different leverage levels:
| If EUR/USD rises 1%: your $100,000 position gains $1,000, you’ve doubled your $1,000 deposit from a 1% move.
If EUR/USD falls 1%: your position loses $1,000, you’ve lost your entire deposit from the same 1% move. |
That’s the whole story of leverage in one example: it magnified a small 1% market move into a 100% swing on your capital, in both directions. Without leverage, that same $1,000 in a $1,000 position would have gained or lost just $10.
How much leverage can you use?
The maximum leverage available depends on your broker and its regulator. Some regulators cap retail leverage (often around 1:30), while internationally-regulated brokers may offer much more. WRPRO offers leverage that scales with your account tier, up to 1:500:
| WRPRO account | Maximum leverage |
| Classic | Up to 1:100 |
| Bronze | Up to 1:200 |
| Silver | Up to 1:300 |
| Gold | Up to 1:400 |
| Diamond | Up to 1:500 |
Remember: a higher maximum doesn’t mean you should use it all, the leverage you choose matters more than the maximum on offer.
The risks of leverage
Leverage can significantly increase both potential gains and potential losses. Because it increases your market exposure relative to the margin required, a relatively small adverse price movement can result in substantial losses:
- Losses can occur quickly. In the simplified example above, a 1% adverse movement on a $100,000 position would result in a $1,000 loss, before applicable costs.
- Margin calls and stop-outs. If losses reduce your available margin, you may be required to provide additional funds or positions may be closed automatically in accordance with the broker’s margin and close-out rules.
- Losses can be amplified. Higher leverage increases the effect of market movements on the funds used as margin. Trading decisions, including position size and risk-management measures, should therefore be considered carefully.
Leverage does not make a trade more likely to be profitable. It increases market exposure and can increase the speed and size of both gains and losses.
| Risk warning: Forex/CFDs trading involves significant risk to your invested capital. Please read and make sure that you fully understand our Risk Disclosure Policy. |
How to use leverage responsibly
- Consider using less than the maximum available leverage. The availability of high leverage does not mean it is appropriate for every trade. Lower leverage can reduce your market exposure and potential losses relative to your available margin.
- Consider using a stop-loss. A stop-loss can help manage potential losses, although it does not guarantee execution at the specified price and may not fully protect against losses in fast-moving markets or during price gaps.
- Manage your position size carefully. Consider how much of your available funds you are prepared to put at risk on each trade. There is no single risk level that is appropriate for every trader.
- Practise before trading with real money. A demo account can help you understand how leverage, margin and price movements affect a position before you trade with real funds. Demo results do not guarantee future live trading results.
Frequently asked questions
What is leverage in trading?
Leverage allows you to gain exposure to a larger position while providing a smaller amount of funds as margin. It is expressed as a ratio, such as 1:100, and can increase both potential gains and potential losses.
How does leverage work?
You provide an amount of margin to open a leveraged position, giving you exposure to a larger position value. Your profit or loss is based on the size of the position, rather than only on the margin provided. As a result, leverage can increase the impact of market movements on your funds.
What does 1:100 leverage mean?
1:100 leverage means that the required margin for a position would be 1% of its value, subject to the broker’s terms and applicable requirements. For example, $1,000 of margin could provide exposure to a $100,000 position.
Is leverage good or bad?
Leverage is neither inherently good nor bad. It is a feature of leveraged trading that increases market exposure relative to the margin required. It can increase potential gains, but it can also increase potential losses.
What leverage should a beginner use?
There is no single leverage level that is appropriate for every trader. Beginners should understand how leverage and margin work, consider the potential losses involved, and ensure they are comfortable with the risks before trading with real money. A demo account can be used to practise first.
What is margin?
Margin is the amount of funds required to open and maintain a leveraged position. The margin requirement generally decreases as the leverage available increases. For example, at 1:100 leverage, the margin requirement for a position may be 1% of its value, subject to the broker’s terms and applicable requirements.
What leverage does WRPRO offer?
WRPRO offers leverage of up to 1:500, depending on the account tier and applicable terms. The available leverage ranges from up to 1:100 for Classic to up to 1:500 for Diamond.
Want to learn more? Read our beginner’s guide, or use a demo account to practise with virtual funds and become familiar with leverage and margin before considering live trading.
Risk Disclaimer
Any information/articles/materials/content provided by WRPRO or displayed on its website is intended to be used solely for educational purposes only and does not constitute investment advice or a consultation on how the client should trade.
Although WRPRO has taken care to ensure that the content of such information is accurate, - it cannot be held responsible for any omission/error/miscalculation and cannot guarantee the accuracy of any material or any information contained herein.
Therefore, any reliance you place on such material is strictly at your own risk. Please note that the responsibility for using or relying on such material rests with the client and WRPRO accepts no liability for any loss or damage, including without limitation, any loss of profit which may arise directly or indirectly from the use of or reliance on such information.
Risk Warning: FX/CFDs are complex instruments and carry a high risk of losing money quickly due to leverage. You should consider whether you understand how FX/CFDs work and whether you can afford to take the high risk of losing your money.
You should make sure that, depending on your country of residence, you are allowed to trade with WRPRO products. Please ensure that you are familiar with the company’s risk disclosure.
