Leverage lets you control a position larger than the cash you've put up, by borrowing the rest from your broker. It's one of the main reasons retail trading — especially in forex and CFDs — can produce both outsized gains and outsized, fast losses relative to the capital involved.
How leverage actually works
If a broker offers 1:30 leverage, a deposit of €1,000 can control a position worth €30,000. Every price movement in the underlying instrument is then multiplied across that full €30,000 position, not just your €1,000 deposit. A 1% adverse move on the position is a 30% loss relative to your deposit at that leverage ratio.
Margin: the capital that backs the position
Margin is the portion of your own capital required to open and maintain a leveraged position — in the example above, the €1,000 is your margin for a €30,000 position. As the trade moves against you, your account equity falls; if it falls far enough, you may no longer have enough margin to keep the position open.
Margin calls and forced liquidation
A margin call is a broker's notice — sometimes automatic, sometimes a formal warning first — that your account equity has dropped below the level required to sustain your open positions, and that you need to deposit more funds or reduce your positions. Under EU rules for retail CFD accounts, brokers are generally required to close out positions automatically once account funds fall to a set percentage (commonly 50%) of the margin required to keep them open — a negative-balance protection intended to prevent retail traders from owing a broker more than they deposited. It's worth confirming this protection applies to your specific account and broker, since rules can differ outside the EU/UK or for non-retail account classifications.
Why leverage doesn't improve a signal
It's a common and costly misunderstanding: leverage changes how much a given price move affects your account, but it does nothing to change the probability that a signal turns out to be right in the first place. Applying high leverage to a mediocre signal doesn't make it a better signal — it makes the financial consequence of it being wrong considerably worse, faster.
A practical way to think about leverage and position sizing together
Rather than choosing the maximum leverage a broker allows, it's worth working backward from the position-sizing approach in our risk management basics guide: decide the maximum percentage of your account you're willing to risk on a trade, place your stop-loss at a technically meaningful level (see stop-loss and take-profit levels), and let those two numbers determine your position size — with leverage simply being the mechanism that lets you open that size, not a target to maximise.