What it is
Leverage is often quoted as the maximum your broker allows, such as 1:500. Effective leverage is different. It is the total value of your open positions divided by your account equity, and it tells you how much exposure you are really using. This calculator shows your effective leverage and the price move, in percent, that would use up all of your equity.
Why it matters
The leverage your broker offers is only a ceiling. What actually drives your risk is how big your positions are compared with your account. A trader with 1:500 available who keeps positions small can be safer than one with 1:30 who goes close to the limit.
The percentage figure helps you picture the danger. At 20:1, a move of 5% against you would erase the account. Brokers close positions before that point, so the real margin for error is smaller.
Why traders use it
Traders look at it to check their total exposure, especially when several trades are open at the same time. It is also a quick way to compare positions on volatile markets like gold or crypto, where prices can move several percent in a day.
How important is it?
It is a helpful warning light, particularly for traders with many open positions. It is only a rough measure, though, because it ignores your stop loss. With a stop in place, your real risk is the distance to the stop multiplied by the position size, not the whole account. For that reason it works best next to a position size calculator, not instead of one.
Worked example
With the defaults, your open positions are worth 100,000 and your account equity is 5,000. Effective leverage is 20:1, and a 5% move against you would use all your equity (100 / 20 = 5).
If the same 100,000 position sat on 20,000 of equity, leverage would be 5:1, and it would take a 20% move to wipe out the account.
Common mistakes
- Mixing up the broker's maximum leverage with the leverage you are really using.
- Looking at one trade only, and forgetting to add up all open positions.
- Using your balance instead of your equity. Equity includes your floating profit or loss, and is the figure that matters here.
- Believing a stop loss always protects you. Gaps and fast markets can fill your stop at a worse price.
- Using the same leverage on very different markets. A 5% move is rare in a calm currency pair, but common in crypto.
Frequently asked questions
What is a safe leverage level?
There is no universal number. Lower effective leverage gives you more room to be wrong. Many experienced traders keep their effective leverage below 5:1 to 10:1 even if their broker offers 1:500.
What is the difference between leverage and effective leverage?
Leverage is the maximum your broker offers. Effective leverage is what you are using right now: position value divided by equity.
Does higher leverage always mean higher risk?
Not on its own. Risk depends on the size of your positions compared with your equity and on where your stop loss is. High available leverage just makes it easier to take a position that is too large.
Related trading guides
What Is Leverage in Forex and How Risky Is It?
Learn how forex leverage works, why it magnifies both gains and losses, and how to keep your effective leverage under control.
What is Margin and a Margin Call?
Understand how margin works in trading, the risks of leverage, and how to avoid the dreaded margin call.
What Is Drawdown and Why Recovery Gets Harder
See how a trading drawdown is measured, why the gain needed to recover grows faster than the loss, and how to limit deep drawdowns.
This page is for education only and is not financial advice. See our disclaimer.