Leverage is the reason a few hundred pounds can control a position worth thousands — and the reason leveraged trading carries such high risk. If you trade forex, CFDs, spread bets or futures, you're using leverage whether you think about it or not. This guide explains leverage and margin in plain English, the UK rules that apply to retail traders, and how to keep it under control.
What is leverage in trading?
Leverage lets you control a position larger than the money you put up. It's expressed as a ratio: 30:1 means every £1 of your money controls up to £30 of position.
The key point most adverts skip: leverage multiplies losses exactly as much as gains. It doesn't make you a better trader; it makes every outcome larger.
What is margin?
Margin is the deposit your broker sets aside from your account to open and hold a leveraged position. It's not a fee — it's your money, ring-fenced while the trade is open.
Margin and leverage are two views of the same thing:
| Leverage | Margin required |
|---|---|
| 30:1 | 3.33% of position value |
| 20:1 | 5% |
| 10:1 | 10% |
| 5:1 | 20% |
| 2:1 | 50% |
You'll also see:
- Used margin — the total currently locked up by open trades.
- Free margin — what's left to absorb losses or open new trades.
- Margin level — your equity as a percentage of used margin. The lower it goes, the closer you are to positions being closed.
UK leverage limits for retail traders
Under FCA rules made permanent in 2019, retail clients trading CFDs with UK-regulated firms face maximum leverage of (FCA PS19/18):
| Underlying | Maximum leverage |
|---|---|
| Major currency pairs | 30:1 |
| Non-major currency pairs, gold, major indices | 20:1 |
| Commodities other than gold, non-major indices | 10:1 |
| Individual shares and other assets | 5:1 |
Crypto CFDs aren't on that list because the FCA banned the sale of crypto derivatives to retail consumers from 6 January 2021 (FCA).
The same rules also require:
- Margin close-out: firms must close a retail client's positions when their funds fall to 50% of the margin needed to keep them open (firms may close out sooner).
- Negative balance protection: you can't lose more than the funds in your CFD account.
- Standardised risk warnings, including the percentage of the firm's retail accounts that lose money.
These are maximums. You never have to use them.
Worked example: how leverage magnifies a move
Illustration only — round numbers, ignoring spread and financing.
You have a £2,000 account and open a £30,000 position on a major currency pair, using the full 30:1.
- Margin required: £30,000 ÷ 30 = £1,000
- A 1% move against you: £30,000 × 1% = −£300 — that's 15% of your account.
- Margin close-out kicks in when equity falls to 50% of the £1,000 margin, i.e. £500. That happens after a £1,500 loss — a 5% adverse move in the market.
Now the same account with a £6,000 position:
- Margin: £200
- A 1% adverse move: −£60 — 3% of the account.
Same market, same move — the only difference is position size. That's the real lesson: the leverage you actually use is set by your position size, not by the maximum your broker allows.
Effective leverage: the number that matters
Effective leverage = total position value ÷ account equity.
In the first example, £30,000 ÷ £2,000 = 15:1. In the second, £6,000 ÷ £2,000 = 3:1. The broker's 30:1 limit was the same both times.
Rather than targeting a leverage number, most risk-focused traders work backwards from risk per trade: decide the maximum loss (e.g. 1% of the account), place the stop where the idea is invalid, then size the position. Effective leverage takes care of itself. The full method is in how to calculate position size.
What is a margin call?
A margin call is a warning that your equity is getting close to the level needed to support your open positions. Today it's usually an automated platform alert rather than a phone call. If losses continue to the close-out level, the broker closes positions — often starting with the largest losing one — to protect you from losing more than your account.
How to avoid them:
- Use small position sizes relative to your account.
- Always use a stop loss — see where to put a stop loss.
- Don't stack several correlated trades that all lose together.
- Remember overnight financing charges reduce equity over time on held positions.
Leverage in futures
Futures work differently from CFDs. You post initial margin set by the exchange (brokers may require more), and your account is marked to market daily. The contract size is fixed by the exchange — for example, CME's Micro E-mini Nasdaq-100 is $2 per index point, one-tenth of the standard E-mini's $20. Micro contracts exist precisely so smaller accounts can keep exposure proportionate. The principle is identical: position size relative to account equity determines your real risk.
Common leverage mistakes
- Treating maximum leverage as a target. It's a ceiling, not a recommendation.
- Sizing by "how much margin I have free". Free margin tells you what's possible, not what's sensible.
- Opting into higher leverage via professional status or an offshore entity without understanding the protections you give up.
- Ignoring correlation. Three trades on USD pairs can behave like one large trade.
- Using leverage to "grow a small account fast." Leverage doesn't make a small account bigger; it makes each mistake bigger. See how much money you need to start trading forex.
Frequently asked questions
What is the best leverage for a beginner?
There isn't a "best" ratio. A safer approach is to keep risk per trade small (often 1% or less) and size positions from your stop distance; that usually results in low effective leverage regardless of the maximum offered.
Is 30:1 leverage risky?
Using the full 30:1 is high risk: a 1% move against a fully leveraged position costs 30% of the margin committed. The maximum available matters less than how much of it you use.
Can you lose more than you deposit in the UK?
For retail clients trading CFDs with an FCA-regulated firm, negative balance protection means you can't lose more than the funds in your CFD account. Futures and some other products may not have the same protection — check your broker's terms.
What happens if I get a margin call?
You'll usually get an alert when your margin level drops. If equity falls to the close-out level — at least 50% of required margin for UK retail CFD clients — the broker will start closing positions.
Why can offshore brokers offer 500:1 leverage?
They're not bound by FCA retail rules. Higher leverage doesn't improve your trading; it increases how quickly a position can wipe out an account, and you lose UK regulatory protections.
Key takeaways
- Leverage controls a large position with a small deposit (margin) — and magnifies losses as much as gains.
- UK retail CFD leverage is capped (30:1 on major FX), with 50% margin close-out and negative balance protection.
- Effective leverage — position value ÷ equity — is what really matters.
- Size from risk per trade and stop distance, and leverage takes care of itself.
Go further: Pips, Position Sizing & Risk Per Trade in the free Trovia Academy shows how to size every trade so leverage never gets out of hand. Want help setting sensible sizing rules for your account? Book a free strategy call, or join the free Telegram community.
Educational content only — not financial advice. CFDs and other leveraged products are complex and carry a high risk of losing money rapidly due to leverage. Read our risk warning.