Leverage and margin: how much of the trade is yours
This lesson shows where those two numbers come from, so a beginner can see why a small deposit can open a large position and why that cuts both ways.
How leverage turns a deposit into a position size
Leverage is a ratio. It tells you how many times your own money can be multiplied to control a position. At 1:30, each rand of your money controls R30 of the trade. At 1:500, each rand controls R500. The broker sets the maximum leverage it allows, and that maximum can differ from one broker to the next.
The position size you can open is your deposit multiplied by the leverage ratio, divided by the price of the instrument. For USD/ZAR at 18.4100, a deposit of R10,000 at 1:30 gives a maximum position of R10,000 x 30 = R300,000. That is 300,000 / 18.4100 = about 16,296 USD, or 0.16 lots. At 1:500, the same deposit gives R10,000 x 500 = R5,000,000, which is about 271,591 USD, or 2.71 lots.
The calculation is not a target. It is a ceiling. You can always trade smaller. The leverage figure only limits how large a position your account can support. It does not tell you what size is sensible for your own risk.
What margin actually does to your account balance
Margin is not a fee and it is not a cost. It is a portion of your account balance that the broker sets aside as a deposit while a position is open. That money is still yours, but it is not available to open other trades or to absorb losses beyond a certain point. When the trade closes, the margin is released back to your available balance.
The margin amount is calculated from the full position value, not from your deposit. For 0.10 lots of USD/ZAR at 18.4100, the position value is 10,000 USD x 18.4100 = R184,100. At 1:30, the margin is R184,100 / 30 = about R6,137. At 1:500, it is R184,100 / 500 = about R368. The position is identical in both cases. Only the locked amount changes.
Your account balance is split into two figures while a trade is open: margin used and free margin. Free margin is what remains to support the trade against losses. If the trade moves against you, losses are deducted from free margin first. If free margin runs low, the broker may close the position automatically. That event is called a margin call or stop out, and the exact level varies between brokers.
Why the rand risk is not the margin figure
A common error is to look at the margin, see a small number, and assume the risk is small. The margin is only the deposit. The risk is the change in the full position value. On USD/ZAR, a move of 0.01 in the price changes the value of one standard lot (100,000 USD) by 100,000 x 0.01 = R1,000. That is the profit or loss for that move, regardless of how much margin was locked.
At 1:500, the margin on one standard lot is about R3,682. A move of 0.05 against the position is 100,000 x 0.05 = R5,000. That loss is larger than the margin. The broker will take the R5,000 from your free margin, and if there is not enough, it will close the trade. The small margin did not protect you; it allowed a position that could lose more than the deposit set aside.
The safer approach is to decide the rand amount you are willing to lose on the trade first. Then work out the position size that keeps a realistic adverse move within that amount. Only after that do you check whether the required margin fits your available funds. If it does not, you reduce the position or skip the trade. Leverage never changes the size of a price move; it only changes how much of your money is tied up while you are exposed to it.
One lot of USD/ZAR at two leverage levels
| Step | Amount | Note |
|---|---|---|
| Position size | 1 standard lot = 100,000 USD | Standard lot definition |
| USD/ZAR price used | 18.4100 | Example rate only; live rates move |
| Position value in rand | R1,841,000 | 100,000 x 18.4100 |
| Margin at 1:30 | R61,367 | R1,841,000 / 30, rounded to the rand |
| Margin at 1:500 | R3,682 | R1,841,000 / 500, rounded to the rand |
| Difference held aside | R57,685 | R61,367 minus R3,682 |
Margin requirements vary between brokers and can change with market conditions. A broker may round the figure, add a spread, or charge commission or a swap on top. The rand value of a USD position also shifts as USD/ZAR moves.
Doing it once, step by step
Work through these steps once with a pen and paper, using the USD/ZAR price of 18.4100 and a deposit of your own choosing. The aim is to see how the numbers connect before you risk any money.
- 01
Write down your deposit in rand
Choose a round figure, such as R5,000 or R20,000. This is the money you can afford to have tied up. Do not use money you need for bills or rent.
- 02
Pick a leverage ratio and calculate the maximum position
Multiply your deposit by the leverage ratio. For example, R5,000 at 1:30 gives R150,000. Divide that by the USD/ZAR price of 18.4100 to get the position in USD: 150,000 / 18.4100 = about 8,148 USD. That is 0.08 lots.
- 03
Calculate the margin for that position
Take the position value in rand (R150,000) and divide by the leverage ratio (30). The margin is R5,000. Notice that at 1:30 the margin equals your full deposit for this maximum position. At 1:500, the margin on the same position would be R150,000 / 500 = R300.
- 04
Decide a rand risk limit for the trade
Pick an amount you are willing to lose if the price moves against you. For instance, R500. This is not the margin; it is the loss you will accept before closing the trade.
- 05
Work out the price move that hits your risk limit
For one standard lot (100,000 USD), each 0.01 move in USD/ZAR is R1,000. So a R500 risk limit corresponds to a 0.005 move against you on one lot. If you trade 0.10 lots, the same R500 risk allows a 0.05 move. The smaller the position, the larger the adverse move you can survive.
- 06
Check the margin requirement with your own broker
Log in to your trading platform or check the contract specifications. Margin requirements vary between brokers and can change with market conditions. A broker may round the figure, add a spread, or charge commission or a swap on top. Confirm the exact margin and any fees before you open a position.
The mistake most people make here
The common mistake is treating low margin as low risk. At 1:500 the deposit needed looks small, so people open a position far bigger than their account can absorb. A move against the trade is measured on the full position, not on the margin. A 1% move on R1,841,000 is about R18,410, which is many times the R3,682 margin. The safer habit is to decide the rand risk first, then choose the smallest position that fits it, and to check the margin requirement with your own broker before opening anything.Check yourself
USD/ZAR is at 18.4100. What is the margin on 0.10 lots at 1:30?
0.10 lots is 10,000 USD. Position value is 10,000 x 18.4100 = R184,100. Margin is R184,100 / 30 = about R6,137.
Using the same price, what is the margin on 0.10 lots at 1:500?
R184,100 / 500 = about R368. The position is the same size; only the amount locked aside changes.
Questions that come up next
1. If margin is only R368, can I lose more than that on one trade?
Yes. Margin is the deposit locked aside, not the most you can lose. Losses are measured on the full position value, so a move against a 0.10 lot position at R184,100 can exceed R368 quickly. Your free margin absorbs those losses until it runs low, and then the broker may close the position. The exact stop-out level varies between brokers.
2. What happens to my margin when I close the trade?
The locked amount is released back to your available balance. It was never a fee and it was never spent. If the trade made a profit, that profit is added. If it made a loss, the loss is deducted. What remains is your balance after the trade.
3. Why does the margin change if the price of USD/ZAR moves?
Margin is calculated from the position value, and the position value depends on the USD/ZAR price. As the price moves, the rand value of the same number of dollars changes. Some brokers recalculate margin in real time, others at set intervals. The margin requirement can also change if the broker alters its leverage settings.
4. Can I choose leverage lower than the maximum my broker offers?
Usually yes. Many brokers let you set a lower leverage on your account, and some allow it per position. Trading at 1:30 instead of 1:500 means more of your own money is locked, but the position size your deposit can support is smaller. That is a choice about how much room your account has, not a prediction about the market.
5. Is a margin call the same as losing my whole account?
No. A margin call is a warning that free margin is low. A stop out is when the broker closes positions automatically to prevent the balance going negative. The level at which each happens varies between brokers and can change. Closing a position at a stop out realises the loss on that trade, but it does not automatically wipe the whole account.
6. How do I work out margin myself before opening a trade?
Take the position size in units, multiply by the price, then divide by the leverage ratio. For 0.10 lots of USD/ZAR at 18.4100, that is 10,000 x 18.4100 = R184,100, then R184,100 / 30 = about R6,137 at 1:30. Check the exact figure with your own broker, because rounding, spreads, commission and swap can change what is actually held.
The words used on this page
- Leverage
- A ratio showing how many times your own money can be multiplied to control a position. At 1:30, each rand controls R30 of the trade. The maximum allowed varies between brokers.
- Margin
- The part of your account balance locked aside while a position is open. It is still your money, but it is not free to open other trades. It is released when the trade closes.
- Free margin
- The part of your balance not locked as margin. It is what absorbs losses while a trade is open. If it runs low, the broker may close the position automatically.
- Position value
- The full rand value of the trade, calculated from the number of units and the current price. On USD/ZAR at 18.4100, one standard lot is 100,000 units, so the position is worth about R1,841,000. Margin is calculated from this figure, not from your deposit.
- Stop out
- The point at which a broker closes a position automatically because free margin is too low. The exact level varies between brokers. It is not the same as losing the whole account.
What to take away
- Leverage sets the largest position your deposit can hold, and it is a ceiling, not a target.
- Margin is the slice of your money locked while the trade is open, and it is released when the trade closes.
- Risk is measured on the full position value, not on the margin figure, so a small margin does not mean a small loss.
- Decide the rand risk first, then pick the smallest position that fits it, and confirm the margin with your own broker.