Account leverage vs effective leverage
Two different numbers are both called "leverage", and mixing them up causes a lot of confusion.
- Account leverage is the maximum your broker allows, such as 1:30, 1:100 or 1:500. It sets how much margin you must put up per position.
- Effective leverage is how much exposure you actually have compared with the money in your account. It is calculated from your open positions and your equity.
A trader with a 1:500 account who opens one micro lot is barely leveraged at all. A trader with a 1:30 account who fills every bit of available margin is leveraged 30 times. Effective leverage is the number that describes your real risk, and that is what this leverage calculator measures.
The formula
Notional value (per position) = Lots × Contract size × Price (in account currency)
Effective leverage = Total notional value ÷ Account equity
For forex pairs where your account currency is the base currency (for example USDJPY in a USD account), the notional value is simply lots × 100,000.
Worked example: a mixed forex and gold book
You have $4,000 of equity in a USD account and two open positions:
- 0.5 lot of EURUSD at 1.0850: 0.5 × 100,000 × 1.0850 = $54,250
- 0.2 lot of XAUUSD at 4,000 (100 oz per lot): 0.2 × 100 × 4,000 = $80,000
Total notional value: 54,250 + 80,000 = $134,250
Effective leverage: 134,250 ÷ 4,000 = 33.56:1
If your broker gives you 1:500 on both instruments, the margin used for these two trades would be only $108.50 + $160 = $268.50, less than 7% of your equity. The account looks lightly used, yet your real exposure is more than 33 times your money. A 1% move against the combined book would cost about $1,342, or roughly a third of the account.
Now suppose losses reduce equity to $2,500 while the positions stay open. Effective leverage rises to 134,250 ÷ 2,500 = 53.7:1. Leverage increases as the account shrinks, which is one reason drawdowns can speed up.
How to use this calculator
- Enter your current account equity and account currency.
- Add each open or planned position: instrument, lot size and current price.
- Check the contract size for CFDs such as gold, oil and indices.
- Read the notional value of each position, the total, and your effective leverage.
- Compare the result with the limit you have set for yourself.
What is a sensible effective leverage?
There is no regulated "correct" level, but some reference points help:
- At 1:1, a 1% market move changes your equity by about 1%.
- At 10:1, a 1% move changes equity by about 10%.
- At 50:1, a 2% move against you removes roughly the whole account.
Major currency pairs often move 0.5% to 1% in a day, and gold or indices can move more. Many experienced traders keep total effective leverage in single digits or low double digits, but your own figure should follow from your stops and risk per trade, not from the account maximum.
Why account leverage still matters
Account leverage does not change your profit or loss per pip, but it decides how much margin each position ties up and therefore how close you are to a margin call. Low margin requirements make it easy to open far more exposure than you intended. Use the margin calculator to see the deposit per position, and keep effective leverage in view alongside it.
Keeping leverage under control
- Size from risk. If every trade is sized with the position size calculator, effective leverage stays tied to your stops.
- Count correlated positions together. Long EURUSD and long GBPUSD are both short the dollar; their notional values add up.
- Recheck after losses. Falling equity raises effective leverage even if you do nothing.
- Watch large contract sizes. One lot of gold at $4,000 is $400,000 of exposure, far more than a lot of most currency pairs. The lot size calculator helps keep gold and index trades in proportion.
Frequently asked questions
What does 1:100 leverage mean?
It means the broker requires 1% margin, so $1,000 of margin can open $100,000 of exposure. It is a maximum, not the leverage you actually use.
How do I calculate my effective leverage?
Add up the notional value of all open positions in your account currency and divide by your equity. $50,000 of positions on $5,000 of equity is 10:1.
Is high account leverage dangerous?
High account leverage makes it possible to open very large positions with little margin. The danger comes from using that capacity. Low effective leverage on a high-leverage account is common.
Does effective leverage include unrealised profit or loss?
Yes, through equity. Equity is your balance plus or minus open profit and loss, so effective leverage moves as trades move.
Should I use balance or equity?
Equity gives the more accurate picture, because it reflects what your account is actually worth right now.
Closing note
The account leverage on your broker's website tells you what you can do. Effective leverage tells you what you are doing. Check it whenever you add a position or after a losing run.
Trading leveraged products carries a high risk of loss. Results are estimates; check your broker's contract specifications.