Leverage in trading: definition

Controlling more than you own

Leverage lets you open a position larger than your capital: with leverage of 30, 1,000 euros of margin controls 30,000 euros of exposure. A 1% price change then produces a gain or loss of 30% of the margin committed.

Leverage doesn't change the result of a position of a given size: it changes the capital needed to open it. The real danger is that it lets you take positions too large for your account.

Limits for retail clients in Europe

Since 2018, ESMA rules, adopted in France by the AMF, cap the leverage offered to non-professional clients: 30:1 on major currency pairs, 20:1 on other pairs, gold and major indices, 10:1 on other commodities, 5:1 on shares and 2:1 on crypto-assets.

The same rules require positions to be closed automatically when margin falls to 50% of the required minimum, and negative balance protection: a retail client can't lose more than their deposit.

Margin calls and liquidation

When unrealised losses reduce available margin, the broker warns you (margin call), then closes positions automatically. This closing happens at the worst time, often at the bottom of a move. Calculating each position's size from the risk you accept, rather than from the leverage available, avoids getting there.

Frequently asked questions

What is the maximum leverage in France?

30:1 on major currency pairs for a retail client, under ESMA's European rules.

Can you lose more than your stake?

Not with a European broker on a retail account: negative balance protection is mandatory. Professional clients don't benefit from it.