Forex Leverage — What It Is and How to Manage Risk

Leverage in Brief

If a broker offers 1:100 leverage, that means a $100 deposit lets you open a $10,000 position.

It's neither good nor bad — without risk management it works in your favor; with poor risk management it destroys accounts.

A Real Example

Imagine an account: $1,000, leverage 1:100.

• You open a $50,000 EUR/USD position
• The market moves just 1% against you
• You lose $500 — half your account

Three Rules

1. Never risk more than 1–2% per trade of your capital
2. Always have a Stop Loss in place
3. Don't think in terms of lots — think in terms of risk per trade

Position Sizing Formula

Position size = (Account × Risk %) / (Stop distance × Pip value)

Example: $1,000 account, 1% risk, 20-pip stop, $1 per pip → 0.5 lots.

⚠️ High leverage cannot fix a bad strategy. It just amplifies results — positive or negative.