Understanding leverage and margin

What leverage is

Leverage lets you control a large position with a smaller amount of capital. It amplifies profits and losses in equal measure, so it must be used carefully. Caveo FX offers leverage of up to 1:400, set according to your account type, trading experience and financial protection requirements.

What margin is

Margin is the portion of your equity set aside to keep a position open. The higher the leverage, the less margin a given position requires. Maintenance margin is the minimum amount that must remain available to keep a trade open.

How margin is calculated

For a forex position:

Margin = (Lots × Contract size) ÷ Leverage

Worked example

1 lot of EUR/USD has a contract size of 100,000. At 1:100 leverage:

Margin = 100,000 ÷ 100 = 1,000 USD

At 1:400, the same position would require 100,000 ÷ 400 = 250 USD. The position size has not changed — only the capital locked up to hold it. The loss per pip is identical either way.

The point that catches people out

Higher leverage does not reduce risk; it reduces the deposit needed to open the same trade. Because the same account balance can now support a much larger position, the practical effect of high leverage is usually that traders take on more risk, not less. Size your position from the loss you are willing to take, not from the margin you are able to post.

The contract calculator in the Caveo FX app will size a position from your balance and stop-loss distance.