All lessons
Leverage, margin and forced closeout
A small margin payment can control a much larger exposure. The loss follows that exposure, not just the margin.
Separate exposure, collateral and planned loss before studying leveraged products.
Leverage creates market exposure larger than the cash committed as margin. Margin is collateral required to open or maintain the position; it is not the purchase price of protection and does not measure the maximum possible loss.
Notional exposure describes the position's underlying value. Effective leverage compares total exposure with account equity. A small percentage move in the underlying can therefore cause a much larger percentage change in equity. Profit and loss depend on exposure, not just margin paid.
Maintenance requirements and closeout rules are product-specific. If equity falls below required levels, positions may be closed automatically, perhaps at unfavourable prices. Cross-position effects, gaps and fees matter. Negative-balance protection varies, so never assume loss is capped at the initial margin.
Let’s use numbers · hypothetical example
A hypothetical USD 1,000 account takes USD 20,000 exposure: effective leverage is 20:1. A 2% adverse movement loses about USD 400 before costs, or 40% of starting equity.
Keep in mind
Leverage is studied here conceptually in simulation. Having available margin does not make a position affordable.
Your turn
For the same account, compare losses from a 1% move on USD 5,000 and USD 20,000 exposure.
A quick check before we move on
What does margin primarily represent?
- A guaranteed maximum trading loss
- The same thing as a stop-loss order
- Collateral required by the product's rules
Check answer
Collateral required by the product's rules Margin supports the exposure. Losses and automatic closeout depend on market moves and the contract's terms.
Sources and further reading
Content reviewed: 29 October 2026
Educational material with hypothetical examples. Trading can cause substantial losses. A course, pattern, stop order or past result cannot guarantee a profit or limit every loss. Practise in simulation and check current rules and product terms in your jurisdiction.
