leverage - definition

Leverage is a regulatory rule that allows a trader to control a larger position size than their account equity by borrowing capital from the broker. It multiplies both potential profits and losses by a fixed ratio, such as 1:30, meaning $1 of equity controls $30 of exposure. Under ASIC regulations in Australia, maximum leverage for retail forex traders is capped at 1:30 for major currency pairs, with lower limits for exotics and CFDs.

Leverage = Position Size / Equity
Example: 1:30 = $30,000 position / $1,000 equity

A trader deposits $5,000 AUD into their account and opens a EUR/USD position worth $150,000 AUD. Using the formula: $150,000 / $5,000 = 30. The trader is using 1:30 leverage. A 1% move in EUR/USD results in a $1,500 AUD gain or loss — 30 times the $50 change without leverage.

• JPY pairs: Leverage calculations for JPY crosses use the same ratio but require converting position size from JPY to AUD, which can introduce minor rounding differences in margin requirements.
• ASIC leverage cap: Since 2021, Australian retail clients are limited to 1:30 for majors, 1:20 for minors, and 1:10 for commodities — professional clients may access higher ratios.
• Intraday vs overnight: Some brokers apply different leverage limits for positions held past market close, particularly for indices or commodities CFDs.

• margin
• margin-call
• stop-out
• lot