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What Are Leverage and Margin?

08/10/2025 08:45:13

In forex and CFD trading, leverage and margin are two core concepts that influence trade size and money management.
 
 
Leverage
Leverage allows you to control larger trades with less capital.
  • If leverage is 500:1, you can open a position worth $500 with only $1 in margin.
  • The higher the leverage, the less margin you need and the larger your position size; however, the risk and potential loss are also magnified. At DecodeFX, different products have different maximum leverages:
  • Forex (major currency pairs): Up to 1:1000
  • Indices: Up to 1:100
  • Precious Metals (e.g., gold): Up to 1:1000
  • Energy (e.g., crude oil): Up to 1:200
  • Cryptocurrencies: Up to 1:10
(Leverage levels may be adjusted based on market conditions)
 
 
Margin
Margin refers to the minimum amount of funds you must deposit to open a position to maintain the trade. Calculation Formula:
Margin = (Price × Contract Size × Lots) ÷ Leverage
Example:
  • Opening 1 lot of EUR/USD:
    Price = 1.03291, Contract Size = 100,000, Leverage = 500
    Margin = 1 × 1.03291 × 100,000 ÷ 500 = USD 206.58
  • Opening 1 lot of Gold:
    Price = 1786, Contract Size = 100, Leverage = 500
    Margin = 1786 × 100 ÷ 500 = USD 357.20
  • Opening 1 lot of HK50 Index:
    Index Points = 18,900 HKD, Exchange Rate: USD/HKD = 7.79111, Leverage = 100
    Margin = 18,900 ÷ 100 ÷ 7.79111 ≈ $24.26
 
 
Summary
  • Leverage = A tool for amplifying trading volume.
  • Margin = The minimum amount of capital required to open a position.
  • The two are closely related: higher leverage reduces margin requirements, but also increases risk.
     
At DecodeFX, you can flexibly choose the appropriate leverage ratio for different products and trading styles, and protect your funds through strict risk management (such as stop-loss orders).