What Is Leverage?
Leverage is a tool that allows you to control a trading position much larger than your actual capital. It is expressed as a ratio — for example, 1:100 means that for every $1 of your own money, you can control $100 in the market.
In practical terms, if you have $1,000 in your account and use 1:100 leverage, you can open a position worth $100,000. The broker effectively lends you the difference, using your $1,000 as collateral (known as margin).
Leverage amplifies both profits and losses proportionally. If the market moves 1% in your favour on a $100,000 position, you gain $1,000 — a 100% return on your $1,000 margin. But if the market moves 1% against you, you lose $1,000 — your entire margin. This dual nature makes leverage one of the most powerful yet dangerous tools in a trader's arsenal.
At QuantaraEX, leverage is available up to 1:500 on forex majors for VIP accounts, with lower ratios applied to more volatile instruments like cryptocurrencies and individual stocks, reflecting the higher risk those markets carry.
Leverage at a Glance
- Maximum AvailableUp to 1:500 (VIP)
- Margin Call Level80% margin level
- Stop-Out Level50% margin level
- Negative BalanceProtection included
- AdjustableYes, per account
How Margin Works
Margin is the amount of capital your broker holds as collateral when you open a leveraged position. It is not a fee — it is your money, set aside to cover potential losses.
Used Margin
The portion of your balance currently locked as collateral for open positions. Each position requires a specific margin amount based on the instrument, leverage, and position size.
Free Margin
The difference between your equity and used margin. This is the capital available for opening new positions or absorbing floating losses on existing ones. Free Margin = Equity - Used Margin.
Margin Level
A percentage that shows how much of your equity is being used as margin. Calculated as (Equity / Used Margin) x 100. A margin level of 500% means your equity is five times your used margin.
Equity
Your account balance plus or minus the unrealised profit or loss on open positions. Equity fluctuates in real time as your positions move in and out of profit.
Balance
The total cash in your account, reflecting only closed trades and deposits/withdrawals. It does not change while positions are open — only equity does.
Margin Requirement
The percentage of the position value that must be posted as margin. For 1:100 leverage, the requirement is 1%. For 1:20 leverage, it is 5%. Lower leverage = higher margin required.
Margin Calculation Formula
Example: To open 1 lot of EUR/USD (100,000 units) at a price of 1.0850 with 1:100 leverage: Required Margin = (100,000 x 1.0850) / 100 = $1,085.
Leverage by Instrument
Different instruments carry different levels of risk and volatility, which is why maximum leverage varies across asset classes. More volatile instruments have lower maximum leverage to protect both the trader and the broker.
| Instrument | Max Leverage | Margin Required | Examples |
|---|---|---|---|
| Forex Majors | 1:500 | 0.2% | EUR/USD, GBP/USD |
| Forex Minors | 1:200 | 0.5% | EUR/GBP, AUD/JPY |
| Forex Exotics | 1:100 | 1.0% | USD/TRY, USD/ZAR |
| Indices | 1:100 | 1.0% | S&P 500, DAX 40 |
| Commodities | 1:100 | 1.0% | Gold, Oil |
| Stocks CFDs | 1:20 | 5.0% | AAPL, TSLA |
| Cryptocurrencies | 1:5 | 20.0% | BTC/USD, ETH/USD |
Note: Maximum leverage depends on your account type. Standard accounts have a maximum of 1:200, while VIP accounts can access up to 1:500 on forex majors. You can also manually set a lower leverage from your account settings at any time.
Practical Examples
The best way to understand leverage is through concrete examples. Here are three real-world scenarios showing how margin and leverage interact.
Forex — EUR/USD at 1:100
Key insight: A 50-pip move represents a $500 profit or loss — 50% of your margin.
Stocks — Apple CFD at 1:20
Key insight: A 5% drop ($8.75/share) would cause a $875 loss, wiping out your entire margin.
Crypto — BTC/USD at 1:5
Key insight: A 20% drop ($12,000 per BTC) would result in a $6,000 loss, equalling your margin.
Margin Call & Liquidation
When your account equity drops relative to the margin used, the system triggers protective mechanisms to limit your losses. Understanding these levels is critical.
Healthy
— Margin Level: Above 200%Your account has ample free margin. You can open new positions and your existing positions are well-supported. This is the zone you should aim to stay in through proper position sizing.
Warning
— Margin Level: 100% – 200%Your free margin is decreasing. While you can still maintain positions, opening new ones may be restricted. Consider reducing exposure or adding funds to your account.
Margin Call
— Margin Level: At 80%QuantaraEX issues a margin call notification when your margin level drops to 80%. This is a warning that your account is approaching dangerous territory. You should close some positions or deposit additional funds immediately.
Stop-Out (Liquidation)
— Margin Level: At 50%When the margin level reaches 50%, the system automatically closes your most unprofitable position to free up margin and protect you from further losses. If the level remains at or below 50%, additional positions are closed one by one until the margin level recovers above the threshold.
Negative Balance Protection
QuantaraEX offers negative balance protection on all account types. In extreme market conditions where the stop-out mechanism cannot execute at the exact threshold (e.g., during a flash crash or major gap), your account balance will never go below zero. Any negative balance is automatically reset at no cost to you.
Responsible Use of Leverage
Leverage is a tool — like any tool, its value depends entirely on how it is used. These principles will help you harness leverage effectively while managing risk.
Never Risk More Than 1–2% Per Trade
Professional traders typically risk no more than 1-2% of their account balance on a single trade. If your account is $10,000, risking 1% means a maximum loss of $100 per trade. This ensures that a series of losing trades will not devastate your capital.
Always Use Stop-Loss Orders
A stop-loss order automatically closes your position at a predefined price level, capping your potential loss. Trading without a stop-loss is like driving without a seatbelt — the risk may seem low until an unexpected event occurs.
Understand the Full Position Value
When using 1:100 leverage, a $1,000 margin controls a $100,000 position. Gains and losses are calculated on the full $100,000, not just your $1,000 margin. Always think in terms of the total position size, not just the margin posted.
Start with Lower Leverage
Just because 1:500 leverage is available does not mean you should use it. Beginners are strongly advised to start with 1:10 or 1:20 leverage until they develop confidence in their strategy and risk management skills.
Keep a Healthy Margin Level
Aim to maintain a margin level above 200% at all times. This gives your positions room to breathe during normal market volatility and protects you from unexpected spikes that could trigger a margin call.
Avoid Over-Leveraging During News Events
Major economic releases like Non-Farm Payrolls, central bank decisions, or inflation reports can cause sharp price movements. Reduce your leverage or close positions ahead of high-impact events to protect against sudden volatility.
Margin Calculator
Before opening any leveraged position, it is wise to calculate the margin required and understand the potential profit and loss at different price levels.
How to Use the Formula
Required Margin = (Lot Size x Contract Size x Price) / Leverage
Where Contract Size = 100,000 for forex, 1 for stocks, varies for others
Pip Value = (0.0001 / Price) x Contract Size x Lot Size [converted to account currency]
For JPY pairs, use 0.01 instead of 0.0001
Profit / Loss = (Exit Price - Entry Price) x Contract Size x Lot Size
Negative result = loss; positive result = profit (for long positions)
QuantaraEX provides a built-in margin calculator within the trading platform. Before confirming any order, the platform displays the required margin, pip value, and estimated cost, so you always know exactly what you are committing before placing a trade.
Important: Between 70-80% of retail investor accounts lose money when trading leveraged products. You should consider whether you understand how leverage works and whether you can afford to take the high risk of losing your money. Never invest more than you can afford to lose.