What Is Leverage in Forex? UK Limits Explained

By Rise Together FX team · 7 min read

Lever and fulcrum where a small deposit weight lifts a large position block, noting that losses are magnified too

Leverage lets you open a trading position much larger than the money you put down. It's built into almost all retail forex trading, and it's the main reason small price moves can cause large losses. This guide explains how leverage and margin work, walks through made-up examples, and sets out the limits that apply to retail clients of UK-authorised firms.

Trading forex and CFDs is high risk and you can lose all the money you put in. Most retail CFD accounts lose money. This article is general education, not financial advice.

Leverage and margin in plain terms

When you trade forex through a retail broker, you usually trade a CFD (contract for difference) or a rolling spot forex contract. You don't buy the currency itself. You agree to exchange the difference in price between when you open and when you close.

To open a position, the broker asks you to put down a deposit called margin. The position itself, called the exposure, can be many times bigger than that margin. Leverage is the ratio between the two.

With 30:1 leverage, £1 of margin controls £30 of exposure. The margin is 1/30 of the exposure, which is about 3.33%.
With 20:1 leverage, the margin is 1/20 of the exposure, or 5%.

The important point: profits and losses are worked out on the full exposure, not on the margin. A 1% move on a £30,000 position is £300, whether you put down £30,000 or £1,000.

Margin isn't a fee, and it isn't the most you can lose. It's money set aside from your account while the position is open. If the trade loses, the loss comes out of your account, and it can be larger than the margin.

Worked example: the same move at different leverage

Illustrative example (made-up numbers to show the mechanics; not based on any real account or on our strategy):

You have £1,000 in your account. Price moves 1% against you. Here's what that does at different levels of exposure:

Exposure	Effective leverage on your £1,000	Loss from a 1% move	Loss as a share of your £1,000
£5,000	5:1	£50	5%
£30,000	30:1	£300	30%
£100,000	100:1	£1,000	100%

The price move is identical in every row. Only the size of the position changes. At 100:1, which is above the UK retail limit for any currency pair, a 1% move would take the whole account.

Currency pairs can move 1% in a day, and sometimes in minutes around major news. Leverage magnifies gains in the same way, which is why it can look attractive. But the arithmetic works just as hard against you, and most retail CFD accounts lose money.

Using all your money as margin

Illustrative example (made-up numbers, continued): at the UK's 30:1 limit for major pairs, your £1,000 could in theory be used as margin for a £30,000 position. That would leave no spare money in the account. Under UK rules the broker must start closing your positions when your account value falls to half the margin needed, here £500. On a £30,000 position, that's a move of only about 1.7% against you.

This is why the amount of margin you use matters as much as the leverage available. We explain margin level, margin calls and close-outs in Margin call vs stop out.

UK retail CFD limits and where they come from

In 2018 the European Securities and Markets Authority (ESMA) introduced temporary restrictions on CFDs sold to retail clients across the EU, including the UK, which applied from 1 August 2018. The FCA then made these restrictions permanent in the UK in policy statement PS19/18, with the rules applying from 1 August 2019. They're now in the FCA Handbook at COBS 22.5.

For retail clients of firms covered by the rules, the minimum margin to open a CFD position is:

Underlying	Minimum margin	Maximum leverage
Major currency pairs	3.33%	30:1
Minor currency pairs, gold, major stock indices	5%	20:1
Minor stock indices, commodities other than gold	10%	10:1
Individual shares and other assets	20%	5:1

In the FCA's rules, a major currency pair is any two of the US dollar, euro, Japanese yen, pound sterling, Canadian dollar and Swiss franc. Every other pair is a minor pair. Separately, the FCA has banned the sale of cryptoasset derivatives, including CFDs, to retail consumers since 6 January 2021.

Alongside the leverage limits, the same rules require firms to:

close out positions when a retail client's account falls to 50% of the margin needed to keep them open;
give negative balance protection, so a retail client can't lose more than the money in their CFD account;
stop offering cash or other inducements to trade; and
show a standard risk warning with the percentage of their retail accounts that lose money.

These limits don't make trading low-risk. They cap how large a position you can open. At 30:1, a small move can still cause a large loss, as the example above shows.

Why offshore accounts may have much higher leverage, and what you lose

Brokers outside the UK, and overseas companies in the same group as a UK broker, may offer much higher leverage, which magnifies losses further. Higher leverage isn't a benefit. It means a smaller price move can wipe out an account.

An account with an overseas firm may also come without UK protections: the 50% margin close-out, negative balance protection, and UK routes to complain or claim compensation. The FCA says that if you deal with a firm that isn't authorised by it, you won't be covered by the Financial Ombudsman Service or the Financial Services Compensation Scheme.

The same applies to us. Rise Together FX is not authorised or regulated by the Financial Conduct Authority. That means you couldn't take a complaint about us to the Financial Ombudsman Service or claim from the Financial Services Compensation Scheme.

The FCA has also warned about firms pressuring UK clients to opt up to "professional" status or to move to offshore providers, which can remove retail protections, including the leverage limits.

Margin level, margin call and stop out

Your trading platform shows how much of your account is tied up as margin:

Margin: the money set aside for your open positions.
Free margin: what's left to open new positions (equity minus margin).
Margin level: equity divided by margin, as a percentage.

As losses grow, equity falls and so does the margin level. Brokers set a margin call level, where they warn you, and a stop out level, where they start closing your positions. For UK retail CFD clients, positions must be closed by the time equity falls to 50% of the margin required. Brokers can set their own levels on top, so check your broker's terms. Full detail is in Margin call vs stop out.

How leverage interacts with lot size

In MetaTrader 5 you don't choose "leverage" for each trade. You choose a lot size, which sets the exposure. The leverage on your account then decides how much margin that exposure needs.

Illustrative example (made-up numbers): on EUR/USD, 1 standard lot is 100,000 euros, so 0.10 lots is 10,000 euros. If that's worth about £8,500, the margin at 30:1 is about £283. A 50-pip move on 0.10 lots of EUR/USD is $50 (10,000 × 0.0050), whatever leverage the account has.

So two things matter: the lot size, which sets how much you gain or lose per pip, and how much of your account is used as margin, which sets how close you are to a close-out. Higher leverage lets you open bigger lots with the same money, and that's where the danger is. See Forex lot size explained and What is drawdown in trading?

Our own strategy trades AUDCAD using high leverage, and its drawdowns can be large. You can lose all the money in your account. Read our risk page before deciding anything.