Leverage
The most misunderstood number in trading, the one beginners obsess over for the wrong reasons.
What it is
Leverage is the ratio between your capital and the position size you can control. With 1:100 leverage, $1,000 in your account lets you open a position worth $100,000. You're not borrowing money. The broker (or prop firm) is letting you control a larger position with your account balance as collateral.
Why it exists
Currency pairs move in tiny increments. EUR/USD moving 50 pips is a 0.05% move. On a $1,000 account without leverage, that's 50 cents. Leverage makes small price movements meaningful, which is necessary for forex to work as a retail market at all.
The common misconception
Beginners think higher leverage = more risk. It doesn't. Position size creates risk, not leverage. A trader with 1:500 leverage who opens a 0.1 lot position has the exact same risk as a trader with 1:30 leverage who opens a 0.1 lot position. The difference is that the low-leverage trader needs more margin locked up to open that same trade.
What leverage actually determines:
- How much margin is required to open a position
- How many positions you can have open simultaneously
- How quickly you'll get a margin call if you're overexposed
Leverage in prop firms
Most prop firms offer 1:100 for forex, sometimes 1:30 or 1:50 for indices and commodities. This is usually not a competitive differentiator. What matters far more is the drawdown limit. A firm offering 1:100 with a 5% trailing drawdown is much more restrictive in practice than a firm offering 1:30 with a 10% static drawdown, because the drawdown limit is what actually constrains your position sizing.