Leverage calculator

How do you calculate leverage?

Effective leverage = total value of your open positions / account equity. Position value is the lots times the units in one lot times the price, converted into your account currency when the price is quoted in another one. Equity is the balance plus or minus any open profit or loss.

The default inputs hold one standard lot of EUR/USD at a price of 1.1000 in a $10,000 account. The position is worth 1 x 100,000 x 1.10 = $110,000, so the effective leverage is 110,000 / 10,000 = 11.00:1. A 1% move against it costs $1,100, which is 11% of the equity, and a move of 9.09% would take the equity to zero.

That last figure is simply 100% divided by the leverage. It is the clearest single way to read a leverage number: at 11:1 the market only has to travel about an eleventh of the way to zero before your account does.

What does a 1% move do at different leverage?

At any leverage, a 1% price move against your positions costs the leverage figure as a percentage of equity. The move that erases the equity shrinks as leverage rises:

These are straight arithmetic, before costs. In practice a broker's margin rules close positions well before the equity reaches zero, which is the margin call and stop-out process. The chart in the result draws your own figures for moves of 0.5%, 1%, 2% and 5%.

Effective leverage versus the leverage your account offers

The leverage an account offers, such as 30:1, is a ceiling: it sets the margin, the part of your equity set aside to open a position. Effective leverage is what you are actually using. The two are easy to confuse because both are written as ratios.

On the default position, 30:1 means the $110,000 lot needs $110,000 / 30 = $3,666.67 of margin, leaving $6,333.33 of free margin and a margin level of 272.73%. At 50:1 the margin would be $2,200 and at 20:1 $5,500, yet the effective leverage stays 11.00:1 in every case, because the position and the equity have not changed.

So raising the account's leverage does not make a trade riskier on its own; opening a bigger position with the freed-up margin does. When the margin needed is more than the equity, the page says the position could not be opened at that ratio: $500,000 of positions on $10,000 at 30:1 would need $16,666.67.

Working out position value for forex, gold and indices

A forex lot is 100,000 units of the base currency, the first one in the pair. Lots times units times the price gives the value in the quote currency, the second one:

• EUR/USD in a dollar account: the pair is quoted in dollars, so 1 lot at 1.1000 is $110,000.
• USD/JPY in a dollar account: the lot is already counted in dollars, so one lot is $100,000 whatever the price, and the page hides the price field.
• Gold: lots times the ounces in a lot times the dollar price of an ounce. Half a lot of 100 ounces at $2,000 is $100,000; on $20,000 of equity that is 5.00:1, needing $5,000 of margin at 20:1 for a margin level of 400%.
• An index or other CFD: the contract size from your platform times the price or index level, in the currency you choose.

When the position is priced in a currency your account does not use, the page asks for one rate, 1 unit of your account currency = how many units of the quote currency, and divides by it.

If you already know the total value of everything you hold, the From a total value tab skips this step: $50,000 of positions on $10,000 of equity is 5.00:1, and a 1% move costs $500.

Leverage examples in pounds and dirhams

Equity and position value must be in the same currency, so the page values the position in your account currency before dividing.

• Pound account, EUR/GBP. £8,000 of equity holds half a lot of EUR/GBP at 0.8500. The pair is quoted in pounds, so the position is worth 0.5 x 100,000 x 0.85 = £42,500 and the effective leverage is 5.31:1. A 1% move against it costs £425, or 5.31% of equity, and the margin at 30:1 is £1,416.67.
• Pound account, GBP/USD. One lot is £100,000 at any price, because the lot is counted in pounds. A pound account opens on this pair.
• Dirham account, EUR/USD. AED 40,000 of equity holds one lot of EUR/USD at 1.1000, worth $110,000. At 1 AED = 0.2723 USD that is AED 403,966.21, or 10.10:1. A 1% move costs AED 4,039.66, and a 9.90% move would erase the equity.

Switching the currency selector converts nothing. A pair price is never rescaled, and when the position is priced in another currency the page asks for the exchange rate before it gives an answer.

Retail leverage limits in the US and the UK

Regulators cap how much leverage retail traders can be offered. This page states only the limits it has read at source:

• United States. Under the Commodity Futures Trading Commission's regulation 17 CFR 5.9, a dealer must collect a security deposit of at least 2% of the notional value for retail forex trades in major currency pairs and 5% for all other pairs. That is a maximum of 50:1 and 20:1. The 2% rate applies only when both currencies in the pair are major currencies.
• United Kingdom. The Financial Conduct Authority requires firms selling CFDs and CFD-like options to retail consumers to limit leverage to between 30:1 and 2:1, depending on the underlying asset.

Other regions, including the EU and Australia, also limit retail leverage, with figures that depend on the instrument. Check your own regulator's current rules, since the cap that applies depends on where your account is held. Whatever the cap, effective leverage is the figure that sets how much a price move costs you.

Leverage with several open positions

Effective leverage counts everything you hold. Add the value of other open positions under Other open positions, or use the total tab. One lot of EUR/USD at $110,000 plus $40,000 of other positions on $10,000 of equity is $150,000, or 15.00:1.

The calculator adds position values together, so a buy and a sell in related markets both count in full. Positions that tend to move together, such as two dollar pairs, behave like one larger bet, and the 1% figure is a fair guide to the damage when they do. Positions that offset each other lose less on a single move than the total suggests, but they still use margin.

Common leverage mistakes

• Reading the account's leverage as the risk. 500:1 on the account says nothing about risk until you open a position; effective leverage does.
• Dividing by the balance when trades are open. Equity moves with open profit and loss. A losing position raises your effective leverage even if you add nothing.
• Forgetting the currency of the price. A yen account holding EUR/USD is valued in dollars until it is converted at the rate from yen to dollars.
• Ignoring the contract size on gold and indices. A lot of gold at 100 ounces is a very different position from a lot at 10 ounces.
• Treating the margin as the most you can lose. The margin is a deposit. A gap through your stop can cost more than it.

What this leverage calculator leaves out

It takes your equity, position and price as typed and does not follow them as prices move. It does not model a broker's margin call or stop-out levels, which are set by each firm, or negative balance rules, which vary by firm and region. Spread, commission and overnight financing are left out.

The margin figure uses one ratio for everything. Many accounts set different ratios for different instruments, so for a mix of pairs, metals and indices the forex margin calculator is the closer tool. To size a single trade from your risk instead of from leverage, use the lot size calculator or the position size calculator.

Glossary

Effective leverage: total position value divided by equity. Account leverage: the ratio the account allows, which sets the margin. Equity: balance plus open profit or minus open loss. Margin: the part of equity set aside to hold positions open. Free margin: equity minus margin. Margin level: equity divided by margin, as a percentage. Notional value: the full value of a position, not just the deposit. Contract size: the units in one lot.

Frequently asked questions

Courses behind leverage

Sources and review