What Is Leverage in Trading? What to Know Before Using 1:100: Real Leverage and 3 Big Risks

When you open an account, many platforms let you choose leverage: 1:50, 1:100, 1:500 and so on. The bigger the number, the better it looks. But leverage does not make you a better trader; it only lets the same account open bigger positions. Before you use it, make sure you understand the following.

What is leverage?

Leverage means controlling a large position with a small amount of margin. 1:100 means that for every 100 dollars of position, you put up 1 dollar of margin, a margin rate of 1%.

• 1:50 → 2% margin
• 1:100 → 1% margin
• 1:500 → 0.2% margin

Example: assume gold is at 4,000 dollars. On most platforms 1 standard lot of gold is 100 ounces, a position worth 400,000 dollars. At 1:100 the margin is 4,000 dollars; 0.01 lot (1 ounce, worth 4,000 dollars) needs 40 dollars of margin. Leverage on gold, indices and crypto is often different from forex, so check your platform's contract specifications.

Leverage does not change profit or loss per lot

Whether you use 1:100 or 1:500, 0.1 lot of gold makes or loses 10 dollars for every 1 dollar move. Leverage changes how much margin is locked up, not how much each lot gains or loses. What really decides your risk is how many lots you trade, not the leverage number the platform offers.

What matters is your real leverage

The 1:100 offered by the platform is only a ceiling. What you actually carry is:

Real leverage = total position value ÷ account equity

With a 1,000 dollar account and 0.1 lot of gold open (10 ounces × 4,000 = 40,000 dollars), your real leverage is 40 times. In that case:

• A 10 dollar move against you loses 100 dollars, 10% of the account
• A 100 dollar move against you, only a 2.5% price move, loses 1,000 dollars, wiping out the whole account

A 30 to 50 dollar daily move in gold is not unusual, so 40 times real leverage is far too high for a beginner.

3 big risks of high leverage

1. Trading too big: high leverage means you can open a big position, and many people do. Plenty of free margin does not mean you should use it all. A safer approach is to work out the lot size first with risk 1% per trade position sizing, then check that the margin is sufficient, not the other way round.
2. Hitting a stop out sooner: when equity falls below the margin level your platform requires, the platform closes your positions automatically, which traders call a stop out or "blowing up" the account. The higher your real leverage, the smaller the move against you needed to reach that line.
3. Costs grow too: spreads and overnight swap are charged according to position size. The bigger the position, the larger these costs are relative to your account. Spreads often widen around data releases; see why spreads suddenly widen.

How beginners can use leverage more safely

1. Decide the maximum loss per trade first, then calculate the lot size
2. Use a stop loss on every trade; see where to put your stop loss
3. Keep plenty of free margin instead of using it all
4. Start with 0.01 lot and increase slowly once you know how price moves

To plan your stops around gold's key levels each day, see the gold analysis page. Download the Borearis app to set price alerts.

Borearis Research Team · For information only, not investment advice. Trading involves risk.