Forex Leverage

Leverage, margin, and floating loss are critical concepts in forex trading. The first two are sometimes used interchangeably - and not always accurately.

Generally Forex market makers will offer 100:1 leverage, although it can be up to 400 to 1 but also, crucially, do require a certain amount of money in the account to protect (themselves, largely) against a serious loss point.

Let’s take an example.

If a $50,000 position is held in EURUSD on 100:1 leverage, the forex trader has to have  up $500 to keep this position under control.

But, if these positions do decline in value, the brokers, mindful of the rapidity of forex price fluctuation and the amplifying effects of the leverage, typically do not allow their traders to go negative and make up the difference at a later date.

To ensure that the trader doesn’t lose more than is available in the account, forex market makers typically close out positions automatically, if or when a client has expended their  margin (the surplus money in their account which is not commited to any position).

Typically, a trading platform will show the three magic numbers associated with an account: balance, equity, and the  remaining margin.