Leverage, Margin and Account Equity
This lesson explains margin as collateral, leverage as a ratio, the dynamic leverage tiers at Onys Kapital, and the closure of positions when equity is insufficient.
Risk note: educational content only. This article is not financial advice, investment advice, or a recommendation to buy or sell any instrument. Trading leveraged products can result in losses greater than expected, and each reader should understand the risks before trading.
Leverage allows a position to be controlled with a deposit that is a fraction of the position's full value. It is frequently presented as an opportunity and experienced as a source of loss, and both descriptions are accurate because leverage magnifies outcomes in both directions. This lesson defines margin and distinguishes it from a fee, explains leverage as a ratio rather than a recommendation, sets out the dynamic leverage tiers applied at Onys Kapital together with the required margin formula, and describes the relationship between balance, equity, used margin and free margin that determines when positions are closed automatically.
Margin as collateral
When a position is opened, a portion of the account balance is reserved as margin. This amount is not deducted from the account and it is not a charge. It is collateral held against the open exposure for the duration of the position and released in full when the position is closed. The financial result of the position is determined by the change in price, and the margin merely secures the trader's ability to meet an adverse result.
The required margin for a position is calculated as (Lots × Contract Size × Market Price) ÷ Leverage. For one standard lot of EUR/USD at a market price of 1.1000 with leverage of 1:1000, the required margin is (1 × 100,000 × 1.1000) ÷ 1000 = USD 110. The same position at leverage of 1:100 requires USD 1,100. The exposure in both cases is USD 110,000; only the collateral reserved differs.
Leverage as a ratio
Leverage expresses the relationship between the exposure of a position and the margin required to support it. Leverage of 1:1000 means that USD 100 of margin can support USD 100,000 of exposure. It does not mean that a trader with USD 100 should take USD 100,000 of exposure. Available leverage establishes the maximum position that an account can support; the position size selected by the trader establishes the actual risk carried.
The conflation of these two quantities is among the most frequent and most costly misunderstandings in retail trading. A trader who uses the full available leverage carries an exposure such that a small adverse price movement exhausts the account. The lot-size procedure described in Lesson 4, in which position size is derived from acceptable monetary risk, is the appropriate safeguard: it fixes the risk independently of the leverage that happens to be available.
Dynamic leverage at Onys Kapital
Leverage at Onys Kapital is not a single fixed ratio. It is applied on a tiered basis according to the volume of the position, so that small positions receive the highest leverage and larger positions receive progressively lower leverage, with a correspondingly higher margin requirement. The tiers are applied automatically to every order without any action on the part of the trader.
The practical effect of the structure is that margin requirements increase more than proportionately as positions become large, which constrains the concentration of exposure at precisely the point where discipline is most difficult to exercise. The Standard and Pro accounts both offer leverage of up to 1:1000 within this structure. Full details of the application of the tiers are published on the trading conditions page.
- 0 to 5 lots: 1:1000
- 5.01 to 10 lots: 1:500
- 10.01 to 20 lots: 1:250
- 20.01 to 50 lots: 1:100
- Above 50 lots: 1:50
Equity, free margin and the closure of positions
The account balance is the cash held in the account excluding open positions. Equity is the balance adjusted for the unrealised profit or loss on open positions, and it therefore fluctuates continuously while positions are open. Used margin is the collateral reserved against open positions, and free margin is the difference between equity and used margin. Free margin is the capital available to absorb further adverse movement or to support additional positions.
As losing positions move against the trader, equity declines. If equity falls sufficiently relative to the margin required by the open positions, the platform may close some or all of those positions at the prevailing market price. The trader will not necessarily receive advance notice, and responsibility for maintaining adequate funds in the account rests with the client. The margin level, calculated as equity ÷ used margin × 100 per cent, is displayed in the MetaTrader 5 terminal and should be monitored whenever positions are open.
- Balance: cash in the account, excluding open positions.
- Equity: balance adjusted for unrealised profit or loss on open positions.
- Used margin: collateral reserved against open positions.
- Free margin: equity minus used margin; the capital available to absorb losses.