CFD Leverage Explained

What 1:30 leverage means — concrete example

What 1:500 leverage means — same trade

With 1:500 leverage, a 0.2% adverse move wipes your account. EUR/USD moves 0.2% in minutes during volatile conditions like a central bank announcement.

Why regulators cap leverage at 1:30

In 2018, ESMA (European Securities and Markets Authority) imposed leverage caps on retail traders: 1:30 for major forex pairs, 1:20 for gold, 1:10 for commodities, 1:5 for stocks, 1:2 for crypto. The UK FCA adopted the same limits. ASIC followed in 2021.

The reason: studies showed that higher leverage directly correlated with higher loss rates. At 1:500, small normal price movements were enough to wipe accounts. The loss rate was significantly higher than at 1:30.

What is a margin call?

When your losses reduce your account below the broker's required margin level, you get a margin call. The broker closes your positions automatically to prevent further losses. You may lose more than your initial deposit if the market moves faster than the stop can execute.

Negative balance protection — required by FCA and CySEC regulation — means the broker cannot chase you for more than your deposit. If you lose more than you deposited, the broker absorbs the difference. Offshore brokers do not offer this.

How to use leverage safely

Professional traders typically risk 1-2% of their account per trade, regardless of available leverage. With $10,000 and a 1% risk rule, you risk $100 per trade. At 1:30 leverage, this means your stop loss is placed close to your entry — not 33% away.

The leverage available to you is not the leverage you should use. Most experienced traders use effective leverage of 3:1 to 10:1, even when their broker offers 30:1.

Leverage limits by regulator