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Forex leverage explained: how it works at NextTrade
Leverage in forex trading allows you to control a larger position than your actual deposit. At NextTrade, dynamic leverage goes up to 1:1000 on major forex pairs, meaning $100 in your account can control a $100,000 position. The broker effectively lends you the difference. This amplifies both profits and losses. A 1% price move on a $100,000 position is $1,000, which is ten times your original $100 deposit. This guide explains how leverage works, how to calculate margin, and how to apply risk management. Please note that trading with leverage increases both potential profits and losses, and may result in the loss of your entire invested capital. It is important to use leverage carefully and apply appropriate risk management.
How leverage works: a simple analogy
Leverage can be compared to using a deposit when purchasing a property. Instead of paying the full value upfront, a smaller amount (your margin) gives you exposure to a larger position. For example, when buying a property with a 10% deposit, any change in the property's value affects your investment based on the full property value, not just the initial deposit. This means both gains and losses are amplified relative to the amount invested. In trading, leverage works in a similar way. With 1:1000 leverage, the margin required represents a small percentage of the total position size. However, any market movement, positive or negative, is calculated on the full position value. As a result, leverage can significantly increase both potential profits and potential losses, and small market movements may have a larger impact on your account balance. It is important to use leverage carefully and understand the associated risks.
The formula
Leverage formula
Position size = account balance × leverage
Worked example
- Your balance
- $100
- Leverage
- 1:1000
- Position size
- $100,000
$100 × 1000 = $100,000. Your $100 controls a $100,000 position in EUR/USD. This is equivalent to 1 standard lot.
If EUR/USD moves 50 pips in your favour, the resulting change in position value is approximately $500.
If EUR/USD moves 50 pips against you, the resulting loss is approximately $500, several times the margin used. This illustrates why stop-loss orders and appropriate position sizing are important.
Please note that trading with leverage increases both potential profits and losses and may result in the loss of your invested capital.
How to calculate required margin
Margin formula
Required margin = position size ÷ leverage
Example: trading 0.5 lots of EUR/USD
- Position size: 0.5 lots = $50,000
- Leverage: 1:1000
- Required margin: $50,000 ÷ 1000 = $50
You need $50 in available margin to open a $50,000 EUR/USD position. The remaining balance in your account acts as "free margin", a buffer to absorb any floating losses on the trade.
Leverage by asset class
| Asset class | Examples | Max leverage |
|---|---|---|
| Forex majors | EUR/USD, GBP/USD, USD/JPY | Up to 1:1000 |
| Forex minors | EUR/GBP, AUD/CAD, NZD/JPY | Up to 1:1000 |
| Forex exotics | USD/TRY, EUR/ZAR, USD/MXN | Up to 1:200 |
| Gold (XAU/USD) | Spot gold | Up to 1:200 |
| Oil (WTI/Brent) | Crude oil CFDs | Up to 1:100 |
| Indices | S&P 500, NASDAQ, DAX | Up to 1:200 |
| Crypto CFDs | BTC/USD, ETH/USD | Up to 1:10 |
Risk management
Use stop-loss orders as part of risk management
Use stop-loss orders as part of risk management. A stop-loss order is designed to close a position at a predefined price level, which may help limit losses on a trade. Please note that trading with leverage increases both potential profits and losses and may result in the loss of your invested capital.
Consider risk per trade
A common risk-management practice is to risk only a small percentage of total account balance on any single trade. Position size and stop-loss distance can be calculated to stay within a chosen limit. Please note that trading with leverage increases both potential profits and losses and may result in the loss of your invested capital.
Understand margin call and stop-out
At NextTrade, a margin call occurs when your equity drops to 100% of your used margin. Stop-out (automatic position closure) triggers at 50% margin level. These mechanisms are designed to manage risk but do not guarantee you will not lose your deposited funds. Please note that trading with leverage increases both potential profits and losses and may result in the loss of your invested capital.
Consider lower effective leverage
Just because up to 1:1000 is available does not mean it must be used. Traders can manage their effective leverage by adjusting position sizes relative to their account balance. Using smaller position sizes and applying risk management tools, such as stop-loss orders, may help manage exposure to market movements. Please note that trading with leverage increases both potential profits and losses and may result in the loss of your invested capital.
Risk warning
Trading forex and CFDs with leverage carries a high level of risk and may not be suitable for all investors. The possibility exists that you could sustain a loss of some or all of your initial investment. You should not invest money that you cannot afford to lose.
High leverage magnifies both potential profits and potential losses. Before deciding to trade, carefully consider your investment objectives, level of experience, and risk appetite. Seek independent financial advice if necessary. NextTrade provides negative balance protection on all retail accounts, meaning you cannot lose more than your deposited funds, but you can lose all of your deposited funds.
Frequently asked questions
What is the maximum leverage at NextTrade?
The maximum leverage at NextTrade is up to 1:1000 (dynamic leverage), available on major forex pairs such as EUR/USD, GBP/USD, and USD/JPY. Other asset classes have different maximum leverage tiers: forex minors up to 1:1000; indices, gold and exotic forex pairs up to 1:200; oil up to 1:100; and up to 1:10 on Bitcoin and Ethereum CFDs. Dynamic leverage means the effective leverage may adjust based on your position size, market conditions, and risk management parameters. Please note that trading with leverage increases both potential profits and losses, and may result in the loss of your entire invested capital. It is important to use leverage carefully and apply appropriate risk management.
Can I change my leverage?
NextTrade uses dynamic leverage, meaning your effective leverage is determined by the asset class and position size. When you open a position on EUR/USD, leverage up to 1:1000 is available. When you trade Bitcoin CFDs, leverage up to 1:10 applies. You control your effective leverage by choosing your position size relative to your account balance. Larger positions may receive lower leverage tiers automatically. Please note that trading with leverage increases both potential profits and losses and may result in the loss of your invested capital.
Can I lose more than my account balance with leverage?
NextTrade offers negative balance protection on all retail accounts. This means your losses cannot exceed your deposited funds. If your account equity drops to the stop-out level (50% margin), your positions are automatically closed. In extreme market conditions, if slippage causes your balance to go negative, NextTrade resets it to zero. You will never owe money beyond what you deposited. Please note that trading with leverage increases both potential profits and losses and may result in the loss of your invested capital.
Is high leverage suitable for beginners?
High leverage is a trading tool that increases both potential returns and potential losses. It is not required to trade and should be used with caution, particularly by less experienced traders. Traders can manage their effective leverage by adjusting position sizes relative to their account balance. Using smaller position sizes and applying risk management tools, such as stop-loss orders, may help manage exposure to market movements. Please note that trading with high leverage carries a high level of risk and may result in significant losses. It is important to fully understand the risks before trading.
Does leverage cost anything?
Leverage itself has no direct cost. You do not pay a fee to use leverage up to 1:1000. However, holding leveraged positions overnight incurs swap (rollover) fees. These are interest rate differentials between the two currencies in a pair. Swap rates vary by instrument and are displayed in your trading platform before you open a position. Please note that trading with leverage increases both potential profits and losses and may result in the loss of your invested capital.
Trade with up to 1:1000 dynamic leverage
Open your NextTrade account, deposit from $25, and access 130+ instruments with dynamic leverage up to 1:1000 and negative balance protection on retail accounts. Please note that trading with leverage increases both potential profits and losses and may result in the loss of your invested capital.