What leverage is
Leverage lets you control a position larger than the money in your account. At 1:100, every 1 dollar of your own money controls 100 dollars of currency. At 1:500, it controls 500.
The broker is not lending you the money in any ordinary sense. It is asking you to put up a fraction of the position's value — the margin — as a deposit, and the rest of the position exists on its books.
How leverage works
Say you want to buy 1 lot of EURUSD at 1.0850. The position is worth 108,500 USD.
| Leverage | Margin required |
|---|---|
| 1:30 | 3,617 USD |
| 1:100 | 1,085 USD |
| 1:500 | 217 USD |
margin = position value ÷ leverage
The position is the same size in every row. What changes is how much of your own money is locked to hold it — and therefore how little is left to absorb a move against you.
The part people miss
Leverage does not change how much you make or lose per pip. A 1-lot position gains or loses 10 USD per pip whether you opened it at 1:30 or 1:500. What leverage changes is how large a position you can open with the money you have, and so how easily you can open one that is too large.
Example
Two traders each have 1,000 USD. Both are offered 1:500.
- Trader A opens 0.10 lots. Margin used: 22 USD. A 50-pip loss costs 50 USD — 5% of the account.
- Trader B opens 2.00 lots because the platform allows it. Margin used: 434 USD. A 50-pip loss costs 1,000 USD — the account.
Same leverage, same market, opposite outcomes. The difference was volume.
Summary
Leverage is the ratio between the position you control and the margin you post. It multiplies exposure, not skill. Use it to need less margin, never to trade more than your risk plan allows.