Leverage lets you open a position larger than the money set aside to hold it, and that money is the margin. Together they decide how big a position your account can carry. Neither one changes what a pip is worth or how much you are allowed to lose in a day.
What you will learn
- What a leverage ratio such as 1:100 means
- How to calculate the margin a trade needs
- What equity, free margin and margin level tell you
- Why your loss limits stay the same at every leverage
What does 1:100 leverage mean?
A leverage ratio compares the size of a position with the margin needed to hold it. At 1:100, each $1 of margin supports $100 of position, so a $100,000 position needs $1,000 set aside. At 1:500 the same position needs $200, and at 1:10 it needs $10,000.
On CMC Funded you choose the leverage when you buy a challenge: 1:10, 1:25, 1:50, 1:100, 1:200 or 1:500. The fee is the same at every leverage.
Higher leverage magnifies both gains and losses. On any single position a pip is worth the same at 1:10 as at 1:500, so the effect comes through size: more leverage lets the same margin hold more lots, and each extra lot makes a pip worth more to your account.
How do you calculate margin?
Margin is the position's value divided by the leverage. The position's value, often called its notional value, is the number of units times the price, converted into US dollars.
Take one standard lot of EUR/USD at 1.1000. That is 100,000 euros, worth 100,000 × 1.1000 = $110,000. The margin at each leverage is:
- $11,000 at 1:10
- $4,400 at 1:25
- $2,200 at 1:50
- $1,100 at 1:100
- $550 at 1:200
- $220 at 1:500
When the dollar is the base currency the sum is shorter. One standard lot of USD/JPY is $100,000 whatever the price, so at 1:100 it needs $1,000 of margin.
The same formula works for an index, a share or gold: value divided by leverage. On CMC Funded the leverage you choose applies in full to forex pairs other than EURTRY and USDTRY, and to four index CFDs: US30cash, US500cash, US100cash and GER30cash. Other symbols use a fraction of it: half on gold and on Brent and WTI oil, so 1:500 becomes 1:250; a quarter on the other index CFDs, such as UK100cash and JAP225cash, and on commodities such as copper and natural gas; a fifth on EURTRY and USDTRY; a tenth on shares, BTCUSD, ETHUSD, ETHEUR, MELUSD and TRPUSD; a twentieth on BITO.US; and less than a tenth on other cryptocurrencies and on prediction markets. Use the leverage that applies to the symbol in the sum. The margin calculator does the sum for you.
What are equity, free margin and margin level?
Once a trade is open, the platform tracks four numbers. Equity is your balance plus or minus the result of your open trades. Used margin is the margin held for those trades. Free margin is equity minus used margin, the amount left for new trades, and margin level is equity divided by used margin, shown as a percentage.
Here is how they move. A $10,000 account at 1:100 opens 2 lots of EUR/USD at 1.1000.
- Used margin is 2 × $1,100 = $2,200.
- The price falls 20 pips. At $10 per pip per lot, the open loss is 2 × $10 × 20 = $400, so equity is $9,600.
- Free margin is $9,600 minus $2,200, which leaves $7,400.
- Margin level is $9,600 ÷ $2,200 = 436%.
When free margin reaches zero you cannot open new trades. If the margin level keeps falling to the platform's stop-out level, the platform starts closing positions for you.
Why does leverage not change your loss limits?
The loss limits on CMC Funded are measured on equity, and leverage plays no part in them. The daily loss limit is 5% of your equity at the start of each day on Classic and 4% on Direct, so on the first day of a $10,000 Classic account it is $500, and the maximum loss sets a floor of $9,000. Both figures are the same at 1:10 and at 1:500.
Test it with one standard lot of EUR/USD. It is worth $10 per pip at either leverage, so a 50-pip move against you costs $500 and reaches the daily limit. Reaching the limit ends the account, and there is no warning stage first. On the first day of a $10,000 Direct account the daily limit is $400, which is 40 pips on the same lot.
Leverage does change the ceiling on your size. At 1:10 a $10,000 account can hold about $100,000 of position, a little under one standard lot of EUR/USD at 1.1000. At 1:500 it can hold about $5,000,000, roughly 45 standard lots. On 45 lots one pip is worth $450, so the whole $500 daily limit would go in just over one pip.
Low leverage puts a hard cap on size, while high leverage leaves the decision with you. Either way, set your size from the risk first, using the method in the position sizing lesson, then check that the margin fits. The daily loss and maximum loss lesson and the rules page cover the limits in full.
Check your understanding
What margin does 0.50 lots of GBP/USD need at 1.2600 with 1:50 leverage?
$1,260. 0.50 lots is 50,000 pounds, worth 50,000 × 1.2600 = $63,000, and $63,000 ÷ 50 = $1,260.
Two traders each open 0.50 lots of EUR/USD at 1.1000. One chose 1:10 and the other 1:500. The price moves 30 pips against both. Who loses more?
They lose the same: 0.50 × $10 × 30 = $150 each. The only difference is the margin tied up: $5,500 for the trader at 1:10 and $110 for the trader at 1:500.
Does choosing 1:500 raise the daily loss limit on a $10,000 Classic account?
No. On the first day the limit is $500 at every leverage, because it is 5% of the equity at the start of the day, and leverage plays no part in it.
Key points
- Leverage compares position size with margin. At 1:100, $1 of margin holds $100 of position.
- Margin is the position's value in dollars divided by the leverage.
- Free margin is equity minus used margin, and margin level is equity divided by used margin.
- On CMC Funded you choose from 1:10 to 1:500 when you buy, for the same fee. Higher leverage magnifies both gains and losses.
- The daily loss limit and the maximum loss are the same at every leverage.
- The leverage you choose applies in full to forex pairs other than EURTRY and USDTRY, and to four index CFDs. Other symbols, such as gold, shares and cryptocurrencies, use a fraction of it.
Next lesson: Spreads and trading costs: price a trade before you place it
All trading is simulated. Rewards are based on performance and are not guaranteed.