🧱 Basics·beginner

Leverage

Borrowed money from your broker that lets you control a large position with a small deposit.

Leverage is the multiplier your broker gives you. If your broker offers 1:100 leverage, you can control $100,000 of EUR/USD with just $1,000 of your own money. The other $99,000 is effectively a short-term loan from the broker. Leverage is not profit. It's a tool — a sharp one. It amplifies every gain AND every loss by the same factor. At 1:100 leverage, a 1% move in EUR/USD moves your P&L by 100% of your margin. Which means it can blow up your account in a single bad trade if you size wrong. In the US, retail forex leverage is capped at 1:50 for majors by law. Outside the US it can be as high as 1:500 or even 1:1000. High leverage is the #1 reason new traders blow up — not because leverage is evil, but because it makes it too easy to size too big.

Real trade example

A trader with a $500 account and 1:500 leverage could technically open 2.5 lots of EUR/USD. A 20-pip move against them would wipe the whole account. That's the math of over-leveraging.

Related terms

Margin

beginner

The amount of your own money locked up as collateral to open and hold a leveraged position.

Margin Call

beginner

The broker's warning (or automatic closeout) when your account loses too much and can no longer support your open trades.

Lot

beginner

The standard unit of trade size in forex — a standard lot is 100,000 units of the base currency.

Pip

beginner

The smallest standard price move in a currency pair — the building block of every forex profit or loss.

Major Pair

beginner

Any forex pair that includes the US dollar and one other top-tier global currency — the most liquid pairs in the world.

Minor Pair

intermediate

A forex pair made up of two major currencies that does NOT include the US dollar — like EUR/GBP or AUD/JPY.

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