Forex Leverage 101: Understanding Leverage, Margin, and Lot Sizes with DAK Markets
Leverage is one of the most powerful tools in Forex trading—but also one of the most misunderstood. At DAK Markets, we believe that empowering traders with clear and practical knowledge is key to long-term success.
In this guide, we’ll break down how leverage works, how it affects margin requirements, and how lot sizes impact your trading strategy—so you can trade with confidence.
What Is Leverage in Forex?
Leverage allows traders to control a larger position in the market with a relatively small amount of capital. It is expressed as a ratio, such as 1:100 or 1:200.
- 1:100 leverage means that for every $1 of margin, you can control $100 in the market.
- 1:200 leverage means $1 margin controls $200 in the market (0.5% margin requirement).
This means that with higher leverage, you can enter larger trades using less of your own capital—but it also increases your exposure to risk.
Key DAK Markets Tip: Use leverage wisely. Higher leverage magnifies both profits and losses.
Understanding Lot Sizes
Forex trades are measured in lots. Here’s what each lot size represents:
- Standard lot = 100,000 currency units
- Mini lot = 10,000 currency units
- Micro lot = 1,000 currency units
Example:
If you trade 1 standard lot of EUR/USD, you’re trading 100,000 euros.
If EUR/USD = 1.1000, your position is worth $110,000 USD.
How Currency Pairs Work
All Forex pairs are made up of two currencies:
- The base currency (first in the pair)
- The quote currency (second in the pair)
If GBP/USD = 1.3000, then 1 GBP = 1.30 USD. You are buying GBP and selling USD.
Is Leverage a Loan from the Broker?
This is a common misconception. In spot Forex, which is what you trade on platforms like MetaTrader 4 or cTrader, leverage is not a loan. You are entering into a derivative agreement, not physically buying currencies.
You’re agreeing to exchange currencies at a price without taking delivery. Profits and losses are settled in cash.
What Is Margin?
Margin is the capital required by your broker to open a trade. It’s held as collateral to cover potential losses and is not a fee.
- Used margin is the amount locked in for open trades.
- Free margin is the remaining balance you can use for new trades or to withstand drawdowns.
Example Calculation:
If your leverage is 1:100 and you open a trade of 1 standard lot ($100,000 position), your required margin is:
100,000 × 1% = $1,000
Margin Requirements Based on Account Currency
If your account currency is different from the base or quote currency, margin calculations vary.
Example 1:
If your account is in AUD and you’re trading EUR/USD, and EUR/AUD = 1.6316:
- Margin = 100,000 × 1.6316 × 0.01 = 1,631.6 AUD
Example 2:
If trading EUR/AUD with an AUD account and leverage 1:100:
- Margin = 100,000 × current EUR/AUD price × 0.01 = 1,630.9 AUD
What Is a Stop-Out Level?
A stop-out level is the equity threshold at which the broker starts closing your losing positions automatically to protect your account from going negative.
At DAK Markets, our stop-out level is typically 50%.
Example:
- If your used margin is $1,000, and equity drops to $499.99 (below 50%), your most unprofitable trades will begin to close automatically.
- You can prevent this by adding more funds to increase your margin level.
Final Thoughts: Trade Smart with DAK Markets
Leverage can amplify profits, but it can also magnify risk. At DAK Markets, we provide traders with flexible leverage options and powerful tools like MetaTrader 5 and cTrader, allowing for safe and strategic trading.
Whether you’re a beginner or a seasoned trader, understanding how leverage, margin, and lot sizing work is crucial to success in the Forex market.
