If you have ever looked at "$400 " on your platform and thought that was the most you could lose, the numbers in this lesson will surprise you. lets you control a big position with a small deposit, and it is the main reason accounts grow fast in screenshots and shrink fast in reality.
Before we start: what do you think?
You have $1,000 and open 0.10 lot of gold. The platform shows "$400 used margin". The trade has no stop-loss. What is the most this trade can lose?
✗ Margin is only a deposit; your loss comes from the full position, not from the margin.
✗ Brokers do not close trades early to protect you; a stop-out comes only after most of the account is gone.
✓ Right: with a stop-out at 50% margin level, the broker closes this trade only after an $800 loss, and fast markets can make it worse.
✗ A margin call is only a warning; it does not close your trade or limit your loss.
What leverage and margin are
With a , you do not pay the full value of a position. You put aside a small part of it as a deposit. This deposit is called margin. The broker "lends" you the rest of the exposure.
Leverage is the ratio between the position's full value and the margin. With leverage of 1:100, you put aside $1 for every $100 of position. With 1:20, you put aside $1 for every $20.
Two more words you will need:
- Notional value is the full value of your position. It is what you really control.
- Equity is your account balance plus or minus the profit or loss of your open trades. It changes every second while trades are open.
The most important idea in this lesson is this: your profit and loss come from the notional value, not from the margin. The margin is only the deposit. If the price moves against you, you lose money on the whole position.
Quick check
Do your profit and loss come from the margin or from the notional value?
Rules on leverage differ by country. In the EU and the UK, regulators limit leverage for , for example to 1:30 on major and 1:20 on gold. Brokers outside these rules often offer 1:100, 1:500 or more.
A worked example on gold
Gold is traded as . One is usually 100 ounces, so a $1.00 move in the gold price is worth $100 per lot. Brokers can differ, so always check the on your platform.
Worked example: Gold, 0.10 lot on a $1,000 account
To keep the maths simple, imagine gold costs $4,000 per ounce. (The real price is different and changes all the time. Only the method matters here.)
A trader has an account of $1,000 and opens 0.10 lot of gold:
- 0.10 lot = 10 ounces
- Notional value: 10 × $4,000 = $40,000
- At 1:100 leverage, margin needed: $40,000 ÷ 100 = $400
- Value of a $1.00 move: 10 ounces × $1 = $10
The platform shows "$400 used margin", which looks small. But the trader controls $40,000 of gold with $1,000, which is 40 times the account. That is the leverage really in use, whatever the broker's maximum is.
Now look at what normal price moves do:
| Gold moves against the trade | Loss | Share of $1,000 account |
|---|---|---|
| $5 | $50 | 5% |
| $20 | $200 | 20% |
| $50 | $500 | 50% |
Gold can move $20 in a day, sometimes in minutes around big news. See when gold moves.
Compare this with 0.01 lot (1 ounce). A $1.00 move is then worth $1. The same $50 move costs $50, which is 5% of the account. The only change is .
A note on the EU limit: at 1:20, the same 0.10 lot needs $40,000 ÷ 20 = $2,000 of margin. A $1,000 account could not open it. The limit blocks a position that is too big for the account.
Quick check
On a $1,000 account, what share does a $50 gold move cost with 0.10 lot, and with 0.01 lot?
Margin calls and stop-outs
Brokers watch your margin level:
= ÷ used margin × 100%
Each broker sets two warning points. These levels differ between brokers, so the numbers below are only an example.
- Margin call at 100%: the broker warns you, and you usually cannot open new trades.
- Stop-out at 50%: the broker starts closing your trades automatically, at the current price, to stop further losses.
Worked example: When the broker steps in
Back to our trader. Used margin is $400.
- Margin call at 100% happens when equity falls to $400. That is a loss of $600. At $10 per $1, gold has moved $60 against the trade.
- Stop-out at 50% happens when equity falls to $200. That is a loss of $800. Gold has moved $80 against the trade.
So a single trade, with no , can take 80% of the account before the broker closes it. A is not protection. It is the broker stopping the damage after most of it has already happened. In fast markets the close can be even worse.
Quick check
Is a stop-out a safety plan?
How to use leverage without being used by it
You cannot avoid leverage with , but you control how much of it you use:
- Size from risk, not from margin. Decide how much you are willing to lose (for example 1% of the account), set a stop-loss, and calculate the position size from those two numbers. The position size calculator does this for you.
- Always use a stop-loss. It should close your trade long before a . See stop-loss basics.
- Look at notional value. Before every trade, ask: "How much am I really controlling?" If it is many times your account, the position is large, even if the margin looks small.
- High maximum leverage is not a feature. It only allows bigger positions.
- Be careful around news. Gold can move fast. Read what moves gold and gold trading mistakes.
Quick check
Which two numbers should decide your position size?
Key takeaways
- Margin is only a deposit. Profit and loss come from the .
- With $1,000 and 0.10 lot of gold, every $1.00 move is $10, and a $50 move is half the account.
- Margin calls and stop-outs happen after large losses. They are not a safety plan.
- The leverage that matters is your position value divided by your account, not the broker's maximum.
- Size every trade from your stop-loss and your .
Try this
Open a or just use a calculator. Take your real (or planned) account size and work out the notional value of 0.01, 0.10 and 1 lot of gold at today's price. For each one, write down how much a $10 move would cost and what share of your account that is. Then pick the largest size you would accept, and compare it with the 1% rule.