Which Leverage Should You Choose?

The mistake is in the question

Many people assume that choosing 1:500 instead of 1:30 means taking more risk. That is not true in itself.

Someone opening a 0.01 lot position risks exactly the same money whether their leverage is 1:30 or 1:500. What changes is only the margin held - not the profit, not the loss. We showed this with a worked example on the leverage page of this guide.

The real danger of high leverage is not mathematical. It is that it permits a position size you could not otherwise have opened. It does not increase your risk - it raises the ceiling you are allowed to risk beneath, and the decision stays yours.

The one real effect: free margin

Here is the practical difference worth noticing, and it is the only thing leverage actually changes.

Higher leverage holds less margin for the same position, so more free margin stays in your account. Free margin is the cushion that keeps your positions from being closed out when price moves against you temporarily.

Which means very low leverage on a small account can have your trades closed on an ordinary pullback - not because your idea was wrong, but because the margin was not there. That is a kind of loss with nothing to do with analysis.

The practical order

• First decide what percentage you risk per trade - this is the decision that determines the fate of your account.
• Then calculate the position size from the stop distance, with the position size calculator on this site.
• Then choose leverage sufficient to open that size with comfortable free margin - and stop thinking about it.

In that order leverage becomes a consequence rather than a decision. Anyone who starts by choosing leverage has started from the wrong end.

And if you are in Europe the cap is set for you at 1:30 on major pairs, where the clause that matters more than the cap is negative balance protection - which has its own page in this guide.

A warning sign

When a broker markets leverage itself as a headline feature - 1:1000 or more in the advert - it is not selling you a tool. It is selling you the ability to open a larger position.

That serves its income directly, because the spread you pay is charged on size. We set this out on the "How do forex brokers make money" page.