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Use this precise forex margin calculator to help you determine how much capital is used to open a trade, based on the position size and trading account leverage.

What is Forex Leverage

Forex leverage allows retail investors to open larger positions, with a small amount of the account equity (margin). Leverage, in forex CFDs trading, greatly boosts both profits and losses. CFDs leveraged trading is also called margin trading.

The risk of using high leverage ratios in FX trading, discounting the potential for huge profits, is also the potential for huge losses, ultimately, resulting on the total loss of the account’s capital.

For example, buying a leveraged CFD contract, of 0.01 lot of EUR/USD, at 1.0000 with no leverage (1:1), will require US$ 1,000 capital. To lose completely your capital, the EUR/USD price must go to zero, or to 2.0000, to double your investment. If you trade using a 100:1 leverage ratio, a price movement of 100 times less will result in the same profit or loss.

How Does Forex Leverage Works

A standard lot in forex trading is 100,000 currency units, with the value of US$ 100,000. Of course, almost none of the retail investors have such available capital to trade. That’s why CFD brokers offer leveraged trade to retail investors.

With a 100:1 leverage ratio a retail investor can trade a position 100 times greater than they could without leverage. For example, if the cost to purchase 1 lot of EUR/USD without leverage is US$ 100,000 and the CFDs broker is offering a trading account with a 100:1 leverage ratio, then the retail investor only needs US$ 1,000 capital to open a same value position.

This means that with US$ 1,000 the investor is entering a long EUR/USD position of 1 lot (100,000 units) with a value of US$ 100,000.

But be cautious. Because of the characteristic price swings, and the extreme volatility common with forex trading, a higher leverage ratio also means higher risks. Most professional traders use a very low leverage ratio (2:1), or none at all, and a balanced risk percentage per trade.

What is FX Margin

FX margin is the portion of the account’s capital used by a trader to open a new position. This capital, used as margin, it’s not a fee or a cost, and it’s released once the trade is closed. FX margin’s purpose is to protect the broker from losses, caused by traders.

For example, when a trader has a losing position and the available account margin falls below a pre-defined stop-out percentage, one, or all open positions, are automatically closed by the broker. The broker may, or may not, issue a margin call warning preceding such liquidation.