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Risk warningLeveraged products such as CFDs are complex and carry a high risk of losing money rapidly. Only trade with money you can afford to lose.

Lesson 05 · Core · 7 min

Leverage and margin

Leverage does not change how much a market moves. It changes how much that move means to you.
Account balance
$2,000
Margin used
$1,000
Position size
$10,000
Profit / loss
−$150

The market moved−1.5%

Your margin moved−15.0%

Margin level

185%

50%100%

Healthy margin level

Interactive figure · try it

Margin is a deposit, not a cost

When you open a leveraged position, the broker sets aside part of your balance as margin. At 1:30 leverage, a $30,000 position needs $1,000 of margin. The margin is returned when you close; your profit or loss is what changes your balance.

It magnifies both directions

A 1% move on a $30,000 position is $300. Measured against the $1,000 of margin, that is a 30% gain or a 30% loss. The market moved 1%; your margin moved 30 times as much.

That symmetry is the whole story. Leverage is a tool for using capital efficiently, not a way to make more money from the same idea.

Margin level and stop-out

Margin level is equity divided by used margin. If losses push it below the broker's margin-call level, you are warned; below the stop-out level, positions are closed automatically, largest loss first.

Using a fraction of the leverage available, and a stop on every trade, keeps you far from either.

Key takeaways

  • Margin = position size ÷ leverage
  • Leverage magnifies gains and losses equally
  • Watch margin level, not just balance
  • Use less leverage than you are offered