Reading time: 2 minute(s)

Leverage allows increased market exposure using a relatively small deposit. This means that any move on the market can mean a much higher return on investment than with traditional forms of investment without the use of leverage.

However, it’s important to keep in mind that when, or if, the market moves in the opposite direction than you expected, the sum of your loss is also magnified.

Below are some examples that show how leverage works.

Example I:

The first trader wants to take a position on EUR/USD with a volume of 0.1 lot. The contract value is EUR 10,000 and the leverage is 30:1, or 3.33% of the deposit.

This means that the trader needs only 3.33% of the EUR 10,000 to open a position.

Example II:

The second trader wants to open a long position on a CFD S & P500 with a multiplier of 50.

Now let’s assume that the value of the CFD contract for S & P500 is USD 2,000.

To open a position without leverage, the trader would need 2,000 x 50 = USD 100,000 on their account.

If the leverage is 20:1, the trader needs 5% of the contract value to open the position. Therefore, having a USD 5,000 deposit can conclude transactions with an exposure of USD 100,000 (2,000 x 50).

Advantages of Leverage

  1. When compared to the initial investment, profits can be much higher.
  2. Traders can open much larger positions than with physical purchases.
  3. Leverage allows traders to use only a part of their capital for investment, which also makes it easier to invest in different instruments at the same time.

Disadvantages of Leverage

  1. Just as potential profits can be increased, so can be potential losses.
  2. Being able to open much larger positions than with traditional investments can make it easier to lose sense of potential losses.
  3. Diversifying your capital can make it harder to keep track of the total value of your investments.

Margin Level and Margin Required

The margin level determines the deposit that is required to keep open positions. To open and hold positions, a trader must have sufficient funds to secure it. Free margin determines the capital that remains on the account to open subsequent positions, and to cover the changes in the balance resulting from price movements from already opened positions.

With XTB the margin level at which the most lossy position is closed is 50%. This is calculated by dividing the equity with the required level of collateral, and multiplying it by 100%.

On xStation 5, XTB’s trading platform, you can find the margin level in the bar at the bottom of the screen on the right. The mechanism that closes the positions is a security mechanism that limits the risk of a negative balance in the event of sudden movements in the market.

It’s worth remembering to always keep the margin level above 50%, for example by depositing additional funds or by closing several positions.

Xtb logo

Join over 1 000 000 XTB Group Clients from around the world

The financial instruments we offer, especially CFDs, can be highly risky. Fractional Shares (FS) is an acquired from XTB fiduciary right to fractional parts of stocks and ETFs. FS are not a separate financial instrument. The limited corporate rights are associated with FS.
This page was not created for investors residing in Brazil. This brokerage is not authorized by the Comissão de Valores Mobiliários (CVM) or the Brazilian Central Bank (BCB). The content of this page should not be characterized as an investment offer in Brazil or for investors residing in that country.
Losses can exceed deposits

We use cookies

By clicking “Accept All”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

This group contains cookies that are necessary for our websites to work. They take part in functionalities like language preferences, traffic distribution or keeping user session. They cannot be disabled.

Cookie name
userBranchSymbol cc 2 March 2024
test_cookie cc 25 January 2024
adobe_unique_id cc 1 March 2025
__hssc cc 8 September 2022
SESSID cc 2 March 2024
__cf_bm cc 8 September 2022
intercom-id-iojaybix cc 26 November 2024
intercom-session-iojaybix cc 8 March 2024

We use tools that let us analyze the usage of our page. Such data lets us improve the user experience of our web service.

Cookie name
_gid cc 9 September 2022
_gat_UA-98728395-1 cc 8 September 2022
_gat_UA-121192761-1 cc 8 September 2022
_gcl_au cc 30 May 2024
_ga_CBPL72L2EC cc 1 March 2026
_ga cc 1 March 2026
__hstc cc 7 March 2023

This group of cookies is used to show you ads of topics that you are interested in. It also lets us monitor our marketing activities, it helps to measure the performance of our ads.

Cookie name
MUID cc 26 March 2025
_omappvp cc 11 February 2035
_omappvs cc 1 March 2024
_uetsid cc 2 March 2024
_uetvid cc 26 March 2025
_fbp cc 30 May 2024
fr cc 7 December 2022
_ttp cc 26 March 2025
_tt_enable_cookie cc 26 March 2025
_ttp cc 26 March 2025
hubspotutk cc 7 March 2023

Cookies from this group store your preferences you gave while using the site, so that they will already be here when you visit the page after some time.

Cookie name

This page uses cookies. Cookies are files stored in your browser and are used by most websites to help personalise your web experience. For more information see our Privacy Policy You can manage cookies by clicking "Settings". If you agree to our use of cookies, click "Accept all".

Change region and language
Country of residence