Leverage lets a trader open a position larger than the funds in the account, and margin is the portion of those funds set aside to keep the position open. With 1:100 leverage, a $110,000 position needs $1,100 of margin. The account’s balance reflects closed trades, equity adds the running result of open positions, and free margin is equity minus the margin in use. When losses reduce equity close to the margin in use, the broker issues a margin call and, at a lower level, a stop-out closes positions automatically.
Key takeaways
- Leverage is expressed as a ratio, such as 1:100, and determines the margin required: required margin = position value ÷ leverage.
- Leverage reduces the margin needed to open a trade, but it does not reduce the size of potential losses; pip value depends on position size.
- Equity = balance ± open results; free margin = equity − used margin; margin level = equity ÷ used margin × 100.
- Margin calls and stop-outs are triggered by the margin level, not the balance, and the exact levels are set in each broker’s account terms.
What Is Leverage in Forex?
Leverage is the ratio between the size of a position and the margin needed to open it. A leverage of 1:100 means every $1 of margin supports $100 of position value.
|
Leverage |
Margin as % of position |
Margin for $100,000 position |
|
1:30 |
3.33% |
$3,333 |
|
1:50 |
2% |
$2,000 |
|
1:100 |
1% |
$1,000 |
|
1:200 |
0.5% |
$500 |
|
1:500 |
0.2% |
$200 |
Maximum leverage depends on the broker, the account type, the instrument and the regulator. CMS Prime lists leverage of up to 1:500 on its Core account, up to 1:200 on its Master account and up to 1:100 on its Signature account on its account comparison page. Metals, indices and energy products often carry different margin requirements from currency pairs.
What Is Margin?
Margin is the amount of equity reserved to hold an open position. It is not a fee. It is set aside while the position is open and released when it closes.
For a standard forex position:
Margin = (Lot size × Contract size × Price) ÷ Leverage
Example: 1 standard lot of EUR/USD (100,000 euros) at 1.1000 has a notional value of $110,000. With 1:100 leverage, required margin is $110,000 ÷ 100 = $1,100. With 1:500 leverage, the same position needs $220.
Margin requirements can differ by instrument, account type and market conditions. Some brokers raise requirements around weekends, holidays or major events. The exact figures for each symbol appear in its contract specification on MetaTrader 5 and MetaTrader 4.
Leverage Does Not Change Pip Value
A frequent misunderstanding is that higher leverage means higher risk per trade automatically, or that lower margin means lower risk. Neither is quite right.
The gain or loss per pip depends on position size. One standard lot of EUR/USD moves about $10 per pip whether leverage is 1:30 or 1:500. What leverage changes is how large a position the account can open with the same funds. High leverage makes it possible to open positions that are large relative to the account, and that is where the risk comes from.
A useful measure is effective leverage: the total value of open positions divided by equity. A $10,000 account holding one standard lot of EUR/USD at 1.1000 has effective leverage of 11:1, regardless of the maximum leverage the account allows. Pip value and lot sizes are explained in detail in CMS Prime’s trading need-to-knows.
Balance, Equity, Free Margin and Margin Level
MetaTrader shows five related figures at the bottom of the Trade tab.
Balance is the account value from completed activity: deposits, withdrawals, closed trades, and commissions and swaps already charged. It does not include open positions.
Equity is the real-time value of the account:
Equity = Balance + floating gains − floating losses
Used margin is the total margin reserved for open positions.
Free margin is equity not tied up as margin:
Free Margin = Equity − Used Margin
Margin level shows equity as a percentage of used margin:
Margin Level = (Equity ÷ Used Margin) × 100
Free margin is both the buffer available for new positions and the cushion that absorbs losses. As losses grow, equity falls and free margin shrinks with it. These terms are also defined in CMS Prime’s glossary.
A Worked Example
A trader deposits $10,000 and opens 1 standard lot of EUR/USD at 1.1000 with 1:100 leverage. One pip is worth about $10.
|
Scenario |
Balance |
Floating result |
Equity |
Used margin |
Free margin |
Margin level |
|
Position opened |
$10,000 |
$0 |
$10,000 |
$1,100 |
$8,900 |
909% |
|
Price moves 50 pips in favour |
$10,000 |
+$500 |
$10,500 |
$1,100 |
$9,400 |
955% |
|
Price moves 50 pips against |
$10,000 |
−$500 |
$9,500 |
$1,100 |
$8,400 |
864% |
|
Price moves 300 pips against |
$10,000 |
−$3,000 |
$7,000 |
$1,100 |
$5,900 |
636% |
|
Position closed at −300 pips |
$7,000 |
$0 |
$7,000 |
$0 |
$7,000 |
— |
The balance changes only in the last row, when the loss is realised. Figures exclude spreads, commissions and swaps for simplicity.
Now consider the same $10,000 deposit with 5 lots. Used margin is $5,500 and each pip is worth about $50. A 90-pip move against the position creates a $4,500 loss, leaving equity at $5,500 and free margin at zero. The margin level is now 100%. The same 90-pip move on 1 lot would have left a margin level of about 827%. The difference comes from position size, which leverage made possible.
Margin Call and Stop-Out
Margin call: a warning level. When the margin level falls to a set percentage, the platform alerts the trader, and new positions may be blocked.
Stop-out: a forced closure level. If the margin level falls further, to the stop-out percentage, the platform starts closing positions automatically, usually beginning with the largest losing position, until the margin level recovers.
Margin call and stop-out percentages differ between brokers and account types. A broker might, for example, set a margin call at 100% and a stop-out at 50%, but these are illustrative figures only. The actual levels are defined in each broker’s account terms, which for CMS Prime are available on its legal documents page.
In the 5-lot example above, a stop-out at 50% would occur when equity falls to $2,750, which is a further 55-pip move against the position. In fast markets, stop-outs can execute at worse prices than the trigger level, and gaps can cause losses larger than expected.
Common Misunderstandings
- “My balance is fine, so my account is safe.” Balance ignores open losses. Equity and margin level decide stop-outs.
- “Higher leverage means lower risk because margin is smaller.” Lower margin per trade makes larger positions possible; loss per pip depends on position size.
- “Free margin is money I can withdraw.” Withdrawals reduce equity and the margin buffer, and withdrawal rules depend on the broker. Payment processes are described on CMS Prime’s deposits and withdrawals page.
- “Swaps don’t affect margin.” Overnight charges reduce balance and equity over time.
How Volatility and Events Affect Margin
During high-impact news, prices can move sharply in seconds. Equity and margin level can drop quickly, and spreads may widen, which can briefly lower equity further. The CMS Prime economic calendar shows scheduled events, and CMS Prime’s guide to market volatility explains why the size of price moves changes over time.
Weekend gaps are another factor. If a market opens on Monday at a price far from Friday’s close, stop-outs and stop-losses can fill at the opening price rather than the intended level. CMS Prime’s risk disclosure describes these risks.
Frequently Asked Questions
What is the difference between leverage and margin? Leverage is the ratio between position size and the funds needed to open it, such as 1:100. Margin is the actual amount set aside, calculated as position value divided by leverage. Higher leverage means lower margin for the same position size.
Does higher leverage increase risk? Leverage itself does not change the gain or loss per pip, which depends on position size. However, higher leverage allows much larger positions relative to the account, which can lead to fast, large losses. Effective leverage, the value of open positions divided by equity, shows the actual exposure.
What is free margin in forex? Free margin is equity minus the margin currently used by open positions. It shows how much is available to open new trades or to absorb further losses. When free margin reaches zero, the margin level is 100%.
How is margin level calculated? Margin level equals equity divided by used margin, multiplied by 100. For example, equity of $5,000 with $1,000 of used margin gives a margin level of 500%. Brokers use this percentage to trigger margin calls and stop-outs.
What happens at a margin call? At the margin call level, the platform warns that the margin level is low, and new positions may be blocked. It does not close positions by itself. If the margin level continues to fall to the stop-out level, positions begin to close automatically.
Where can I see these figures on MT4 and MT5? Both platforms show balance, equity, margin, free margin and margin level in the Terminal or Toolbox window, under the Trade tab. The values update in real time while positions are open.
Conclusion
Leverage and margin in forex work together. Leverage sets how much margin a position needs, and margin is the portion of equity held to keep it open. Balance records realised results, equity shows the live value, free margin is the buffer left over, and the margin level decides when margin calls and stop-outs occur. Leverage lowers the margin required but does not lower the loss per pip, so position size remains the main driver of exposure. CMS Prime’s account comparison, platforms and legal documents set out the leverage and margin conditions for each of its accounts.
Risk warning: Trading in financial instruments such as Forex, CFDs, and derivatives involves a high level of risk and may not be suitable for all investors. Past performance is not indicative of future results.
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