Prerequisite: Pips, ticks and position units
Learning objective
Separate position exposure, required margin and planned loss at the stop.
Leverage allows an exposure larger than the capital supporting it. Required margin is collateral reserved under the provider’s rules; it is not a fee and not a maximum-loss guarantee. Effective leverage compares total relevant exposure with account equity.
If a hypothetical instrument has a 5% margin requirement, 20,000 of exposure requires 1,000 of margin in the same currency. Actual margin may use currency conversion, tiered rates and changing requirements. Read the legal entity’s current terms. No universal leverage limit is assumed here.
Balance records settled account activity; equity also reflects open profit or loss according to the platform. Losses can reduce available margin and trigger close-out under the contract. A stop can execute worse than requested. Deposit protection and negative-balance protection depend on the actual product, jurisdiction and client classification.
Worked example
Hypothetical equity 2,000 and exposure 20,000 imply 10× effective leverage. A 1% adverse move on a simple linear exposure is about 200 before costs, or 10% of equity. This is an illustration, not an offered account term.
Common mistakes
Available margin is not a reason to increase a position. First define acceptable loss and contract units.
Practice
Write separate columns for equity, exposure, required margin and planned stop loss in a hypothetical account.