LOTS, MARGIN AND LEVERAGE.

Two traders take the identical trade: same pair, same entry, same stop, same lot size. One has 1:30 leverage, the other has 1:500. Their dollar risk is identical. Only the margin locked up differs. This lesson shows you why — and why the trader with 1:500 is not "riskier," they just have less room before a margin call.

What a lot actually is

A lot is a standardized unit size — a fixed number of the underlying asset that one contract represents. It is not a dollar amount, and it is not the same on every instrument. On EURUSD, one standard lot is 100,000 euros' worth of currency. On gold, one standard lot is 100 troy ounces. On a US500 CFD, one lot might be as small as one index point.

Brokers split lots into smaller sizes so that small accounts can trade with proportional risk. Four sizes cover almost everything on retail platforms:

Two things to notice. First, the pip value scales linearly with the lot size — micro is one tenth of mini, mini is one tenth of standard. Second, this table is only true for FX. On gold, a standard lot is often 100 ounces, so the pip value is $1 per pip, not $10. On US500 CFDs, one lot might be one index point, so the "pip value" is $1 per point. Every lot size is a broker-defined contract size. The number 100,000 is not universal — it is just the industry convention for FX majors.

What margin is (and is not)

Margin is the collateral your broker locks up to hold the position open. It is not a fee. It does not leave your account. It is not lost when the trade closes. It is a deposit that gets returned the moment the position is closed, exactly like the security deposit on a rental lease.

The amount locked is calculated from the notional value of the trade and the leverage your broker has assigned to that instrument:

Concrete example. One standard lot of EURUSD at 1.0850, on a broker offering 1:100 leverage:

The broker locks $1,085 in your account to hold a position that controls $108,500 of currency. When the trade closes, the $1,085 is released back into your free margin. You do not lose it, and you do not keep it — it is simply collateral while the trade lives.

This is the single most important idea in the lesson: the size of the trade is the notional, not the margin. $1,085 locked does not mean you are risking $1,085. You are controlling $108,500. Your actual dollar risk is still lot size × stop distance, exactly as Lesson 2 showed.

Leverage: size multiplier, not risk multiplier

Here is the myth: "High leverage is dangerous, so I trade with low leverage." Here is the truth: leverage and risk are two separate variables. Leverage decides how much of your account the broker locks up as margin. Lot size and stop distance decide how many dollars you lose when the market moves against you. Changing one does not change the other.

Watch what happens to the same trade under three different leverage ratios:

Same trade. Same 0.10 lots. Same 20-pip stop. Same $20 risk in every column. The only number that changes is the margin locked by the broker — because that is the only thing leverage affects.

So why does high leverage have a reputation for killing accounts? Because high leverage lets traders take bigger positions than they would otherwise be able to open. A trader with $500 in their account cannot open 1 lot of EURUSD at 1:30 (margin would be ~$3,617 — more than the balance). At 1:500 the margin is only $217, and suddenly the same $500 account can place a trade controlling $108,500. The leverage did not do the damage. The 1-lot size did. Leverage just made the size possible.

Floating leverage and tiered margin

Many brokers do not apply a single leverage ratio to the whole position. Instead, they use a tiered margin system: as your total notional exposure grows, the leverage on the additional exposure decreases. This is often called "floating leverage" or "dynamic leverage."[reference:0]

For example, IC Markets might apply 1:500 on the first 25 lots of EURUSD, then 1:300 on the next 25 lots, then 1:100 on anything above 50 lots.[reference:1] The effect is that large positions require proportionally more margin — which means a trader who doubles their position size does not simply double their margin requirement, they increase it by more than double.

The five account numbers

Your MT5 or cTrader account panel shows five numbers, and traders confuse them constantly. Every margin call in history is downstream of misreading one of these.

• Balance — the cash you deposited, plus realized profit, minus realized loss. It does not move while a trade is open.
• Equity — balance plus floating profit or minus floating loss on open trades. This is what the broker actually uses for margin math.
• Used margin — the sum of margin locked by every open position.
• Free margin — equity minus used margin. The capital available to open new trades or absorb floating losses.
• Margin level — equity divided by used margin, expressed as a percentage. This is the number your broker watches for margin calls.

Read that panel again. The trader has $10,000 in the account but only $542.50 locked as margin. Free margin is $9,377.50. So the account could tolerate roughly $9,377.50 of floating loss on open positions — more than 900 pips against a 0.50-lot EURUSD trade — before margin level fell toward a call. The lot size was sized to the risk percentage in Lesson 2. That is what "room to be wrong" looks like in numbers.

Margin call and stop out

A margin call is the broker's warning: your equity is approaching the amount of margin locked. A stop out is the broker closing positions by force because equity has fallen too far below the locked margin. Both are thresholds on margin level, not on balance.

The default values vary by broker and jurisdiction. A sample of common configurations:

Now watch what that means in practice for the trader who uses leverage to open an oversized position. Same $500 account. Same EURUSD at 1.0850. Same 1:500 leverage. But 1 full standard lot instead of the small size the account should carry:

The trader on the right did not lose their account "because of leverage." They lost it because they opened 50× the size the account justified, and the leverage on the account made that possible. The correct response is not "trade with lower leverage." It is "size the position to the account, and then leverage becomes irrelevant to the risk."

When this fails

Margin and leverage rules are not universal. Seven things to watch: