Margin and leverage are two sides of one coin
1:100 leverage means a 1% margin rate; 1:500 means 0.2%. The formula:
Margin = notional position value ÷ leverage
| Leverage | Margin for 0.10 lots of gold @2400 |
|---|---|
| 1:50 | $480 |
| 1:100 | $240 |
| 1:500 | $48 |
Note the trap: higher leverage "allows" larger positions on the same balance — but it does not change the risk of the trade itself. See leverage and margin.
Free margin and the margin call
During a trade your balance splits into reserved margin + free margin. Floating losses consume free margin first, and as it nears zero you get a margin call, then the stop-out.
Example: a $500 balance with a trade reserving $240 leaves only $260 free. A $260 floating loss (a $26 move on 0.10 lots of gold — an ordinary day's range) puts you at the edge of a stop-out. This is why size relative to balance is more dangerous than leverage itself.