Effective leverage vs broker leverage
Broker leverage (for example 1:500) only tells you the most you could open. Effective leverage compares the size of your open positions to your equity.
Effective leverage = position value ÷ account equity
Example: $5,000 equity and 1 lot of EUR/USD worth about $108,500 gives effective leverage of 21.7 : 1. A 1% move against you would cost about 21.7% of the account.
Sensible levels
Many professional traders keep effective leverage under 10:1. Above 20:1 normal daily price swings can cause large equity changes. The calculator highlights high values in red.
Frequently asked questions
Is 1:500 leverage dangerous?
The leverage setting itself is not dangerous. Opening positions that use most of it is. Size trades by risk, and effective leverage will usually stay low.
How do I lower my effective leverage?
Trade fewer lots, add equity or use a wider stop with a smaller position.