What leverage does and does not do
Lesson 1 of 4 · about 7 minutes
2 questions, each checked the moment you answer it.
6 steps · about 7 minutes
The interactive lesson walks these ideas one screen at a time and checks your answers as you go. The text below covers the same ground for reading.
Leverage lets you open a position without paying its full value
A position is a trade you have open. Opening one does not cost its full value: you set aside a deposit called margin, which the platform holds while the position is open and releases when it closes. Leverage is the ratio between a position's full value and that margin.
Same position, different leverage, same money per pip
0.50 lots of EUR/USD gains and loses US$5.00 a pip whether the account leverage is 1:100 or 1:500. What changes is the margin held: about US$500 at 1:100, and about US$100 at 1:500. The smaller requirement is the point of the higher setting: the same position ties up less of the account, leaving more of it free. Money per pip is set by the size of the position, because the size decides how much currency each pip move is applied to, and leverage is not one of the figures in that calculation.
Does the account have enough margin to open this trade?
Before a trade opens the platform compares your available margin with the margin the new position requires. Available margin is equity minus used margin, the part already held for the positions you have open. If the available amount covers the required amount, the trade passes this check and opens.
Leverage lets you open a bigger position, and the size decides what each pip costs
Higher leverage can let you open a larger position, and a larger position gains or loses more from the same price move. Two account figures do the work below. Equity is what the account is worth right now, including the profit or loss on anything still open. Used margin is the part of it the platform is holding for the positions you have open.