Leverage in simple terms: long, short and liquidation

Leverage in simple terms: what it is

Leverage is written as 1:10 or x10. The one is your money, the ten is the size of the position the broker will allow you to open. With $1,000 at 1:10 leverage, you buy an asset worth $10,000. Of that, $1,000 is yours, and the remaining $9,000 is the broker's borrowed funds.

Your money in such a trade is called margin, that is, collateral. Trading with borrowed money itself is called margin trading. The trader does not receive these $9,000 in hand and cannot withdraw them: the broker only allows you to hold a position with them.

Profit and loss are calculated from the entire position, including the borrowed part. The price rose 3% - the position gained $300, and your account grew by 30%. The price fell 3% - minus $300, and the account lost the same 30%. Three such trades in a row are enough for $1,000 to leave a hundred.

Leverage on an exchange: what it is and how much the loan costs

On the stock market, leverage is provided by the broker. In the US, the Federal Reserve's Regulation T rule allows borrowing up to 50% of the purchase price of margin securities, meaning leverage there is no more than 1:2. The broker charges interest on the loan, and it accrues while the position is open.

The US Securities and Exchange Commission (SEC) shows how this ends when prices fall. A stock was bought for $50, and it dropped to $15.

The debt to the broker does not shrink along with the stock price. The SEC states directly that on a margin account you can lose more than you invested.

What leverage does Alfa-Forex offer

In forex, leverage is provided by dealers. On its calculator page, Alfa-Forex states leverage of 1:40: a trade of 10,000 euros requires a margin of 250 euros. The dealer's glossary says that leverage is fixed when a trade is opened and does not change afterward. As a rule, the dealer does not charge a separate fee for leverage and earns on commission and spread.

The same page states a stop-out of 81%. When the drawdown reaches 19%, the dealer closes all of the client's positions.

What long and short are and how leverage works in both directions

Long is a purchase in anticipation of a rise: bought cheaper, sold dearer. Short in trading works the opposite way. You sell an asset you do not own, usually by borrowing it from a broker. Then you buy it back cheaper, return the debt, and the price difference stays with you.

The SEC bulletin has an example. A stock costs $60, an investor borrows it and immediately sells it. The price falls to $40, he buys the stock on the market and returns it, making $20 per share before commissions. If the price instead rises to $80, the loss will be $20 per share plus commissions.

By the SEC definition, a bull market is a time of rising prices, usually when a broad index has risen by 20% or more over at least two months. A bear market is the mirror image: an index falling by 20% or more over the same period. Hence the jargon: someone who opens a long in anticipation of growth is called a bull, and someone who shorts is a bear.

Shorting has a special risk that the SEC writes about separately. In a long, you lose no more than you invested, because the price won't fall below zero. In a short, there is no ceiling: a stock can theoretically rise indefinitely. Leverage adds a second multiplier to this. A $5,000 short with 1:5 leverage on $1,000 of margin will wipe out the account if the price rises by just 20%.

How leverage multiplies losses: a calculation on a single account

Let's take one account: $1,000 of your own money, and the entire amount goes to margin. The formula is the same for longs and shorts. The loss equals the position size multiplied by the price move against you. The position equals the margin multiplied by the leverage. Hence the price move that consumes the entire margin equals one divided by the leverage.

The bands show by what percentage the price must move against the position for a $1,000 deposit to be wiped out. Calculated using the formula above, excluding commissions and swaps. In reality, the account will be closed before reaching zero: the broker won't wait until its loan is at risk.

The higher the leverage, the more it amplifies losses on small price moves. On the same account with 1:100 leverage, the position is already $100,000. A $300 loss occurs on a 0.3% move, and the entire deposit is gone on a 1% move.

The more the asset's price fluctuates (this is volatility), the lower the leverage it can withstand. The EU regulator sets different limits by asset: 1:30 on major currency pairs and 1:2 on cryptocurrencies. At 1:30, the deposit is wiped out by a 3.33% move; at 1:2, by a 50% move.

Position liquidation: when the broker closes the trade for you

Position liquidation is the forced closing of a trade by a broker, dealer, or exchange when the deposit is insufficient. Usually a margin call comes first, a demand to add funds. The SEC warns: when securities fall, the broker has the right to demand immediate deposit of cash or securities. It may also sell the securities immediately without warning. Even if the broker named a deadline of several days, it may sell earlier, and you have no right to choose what exactly is sold.

The US self-regulatory organization of brokers, FINRA, walks through an example step by step. A portfolio is worth $100,000, of which $50,000 is borrowed. The portfolio falls by $40,000, to $60,000, and $10,000 of your own money remains in it. The total maintenance margin requirement is 25%, which from $60,000 is $15,000. $5,000 is missing, and that is the margin call. If you don't deposit in time, the broker may sell $20,000 of securities.

In the EU, for CFDs the rule is set by a single figure. The provider is obliged to close a retail client's open positions when the margin falls to 50% of the required amount. The chart shows the same rule on a hypothetical trade.

A $30,000 position at 1:30 leverage requires a $1,000 deposit. Half the deposit is $500, and $500 from $30,000 is a 1.67% price move. The same EU introduced negative balance protection: a retail client's loss cannot exceed the money in their account.

Forex dealers in Russia have their own scale. Alfa-Forex writes that in forex a margin call generally comes at a margin level of 100%, when free funds run out. Stop-out is the forced closing of all trades by the dealer.

Liquidation on a crypto exchange

On crypto futures, liquidation is triggered by the exchange. Binance Futures liquidates a position when the collateral is less than the maintenance margin. Collateral includes the initial margin, realized and unrealized PnL. The exchange calculates the Margin Ratio: maintenance margin divided by margin balance. At 100% liquidation occurs, and Binance advises keeping it below 80%.

Liquidation on Binance is calculated using the Mark Price. It is composed of a basket of spot exchange prices and funding data, and the last trade on the exchange itself is not the main factor for liquidation. Therefore, in the terminal, watch the mark price next to the liquidation price.

Set your stop-loss so that it triggers before liquidation. In a long, it sits above the liquidation price; in a short, below it. How to choose a place for the stop and calculate the trade risk is covered in the article about stop-loss and take-profit.

Leverage in trading: limits in Russia, the EU and the US

In the EU, ESMA rules for retail clients trading CFDs have been in force since 2018. Leverage when opening a position is limited from 1:30 to 1:2. Major currency pairs get 1:30; minor pairs, gold and major indices get 1:20. Commodities other than gold and minor stock indices get 1:10, individual stocks 1:5, cryptocurrencies 1:2. The same package included a ban on bonuses for trading CFDs and a standard risk warning.

In the US, retail forex is regulated by the CFTC. The minimum margin there is 2% of notional for major currency pairs and 5% for the rest, meaning leverage no higher than 1:50 and 1:20. When margin is insufficient, the broker is obliged to demand additional funds or liquidate positions.

In Russia, the rules are set by the Bank of Russia, and they have changed several times. Since 01.10.2021, a new edition of the Forex Dealer Basic Standard has been in force. Under it, an unqualified investor's leverage is calculated for each currency pair and is lower than the statutory level of 1:50. Margin is recalculated every trading day based on exchange rate fluctuations over the past year.

In 2022, the Central Bank temporarily reduced leverage for uncovered transactions, from 01.06 to 31.12.2022. At the same time, from 01.06.2022, the bans on short selling securities and buying currency with leverage, introduced on 24 and 27 February, were lifted.

Since 01.04.2025, brokers have a category of clients with an initial risk level: these are people with no experience trading securities and derivatives. Leverage for them is reduced, and the broker is obliged to warn in advance if an order may result in a leveraged trade. Risk coverage ratios set how much a broker can lend a client and at what risk it must forcibly close their positions. Previously they covered securities, currency, precious metals and futures; now options too.

Leverage at Finam, T-Bank and other Russian brokers is subject to these ratios. Any of them will give a beginner with an initial risk level lower leverage and warn about a trade with it. Rules for crypto are still being drafted. In July 2026, Kommersant reported on a draft Bank of Russia directive on margin trading in cryptocurrencies and digital financial assets: leverage will be allowed for qualified and unqualified investors, with limits introduced for the latter later. The Central Bank accepted comments on the draft until 12 August 2026.

Built-in leverage and leveraged products

Built-in leverage sits inside the instrument itself. You don't explicitly borrow, but the result is still multiplied.

This is how a futures contract works. You pay only the guarantee margin for the contract, a part of its price, and leverage equals the contract price divided by the margin. A notional contract worth 100,000 rubles with a margin of 20,000 rubles gives leverage of 1:5. A 20% move in the contract price against you wipes out the entire margin.

There are also leveraged ETFs. Rost Sber explains that such funds rebuild their position every day and replicate the index's daily changes. Because of daily rebalancing, they are not suitable for long-term holding, and this is almost always stated in their prospectuses.

Leveraged products also include prop firm accounts. There the leverage is specified in the rules, and the loss is limited by drawdown limits.

Leverage calculator: calculate before the trade

To calculate risk, you don't need a separate program; five formulas are enough. A futures leverage calculator calculates the same thing, only it plugs in the contract price and the exchange margin.

1. Position size = collateral × leverage.
2. Required collateral = position size / leverage. Alfa-Forex example: 10,000 euros / 40 = 250 euros.
3. Loss = position size × price move against you.
4. Price move until collateral is wiped out = 1 / leverage.
5. Move until close-out under the ESMA rule, if the entire account is collateral = 0.5 / leverage.

The cards prominently show the margin for the same position. With 1:100 leverage the margin is ten times smaller, and it is wiped out when the price moves just 1%.

Suppose you have $2,000 in your account and you want to buy EUR/USD for $20,000, which is 1:10 leverage. A stop-loss at 1% of the price will cost $200, that is 10% of the account. If such risk per trade seems large, reduce the position rather than moving the stop. The article about lot and pip will help you convert a position into lots and find out the pip value.

How to close leverage or cancel it

Leverage lives as long as a position is open with borrowed money. You closed the position - the broker took its loan out of the proceeds, and the remainder returned to your account.

To keep your next trades from using leverage, open a position no larger than your own money in the account. $1,000 in cash and a $1,000 position is 1:1 leverage, whatever the account's maximum leverage is. In forex, leverage is fixed when a trade is opened, so a new value only applies to new positions. In Russia, a broker is obliged to tell a beginner in advance that an order leads to a leveraged trade, and such a trade can be declined.

Leverage vs. a bank loan: what's the difference

The word "credit" is confusing, and leverage is often mistaken for an ordinary loan. A bank loan, for example at T-Bank, is arranged with a loan agreement: amount, term, rate, payment schedule. There can be a loan with a guarantor who is liable for the debt together with the borrower. Leverage has neither a guarantor nor a schedule. The collateral is the money and securities in your account, and the broker sells them itself when the collateral is insufficient.

The broker's loan is repaid automatically when you close the position, and there is no insurance for it. Before trading with leverage, calculate how much you will give away if everything goes against you. And do not top up your trading account with borrowed money from a bank: then leverage sits on top of the loan and the loss becomes debt.

Leverage on your own account and on a prop account

On your own account with leverage, you can lose your entire deposit in a single price move, and on a margin account even more. A prop account works differently. You pay for the challenge (a check against the rules), trade on a simulated account according to the prop firm's rules, and your personal loss is limited to the price of the challenge. Drawdown limits work as a built-in stop: you breach the limit - the account is closed, but you have no debt to anyone.

Leverage on prop accounts exists, and it is considerable. According to the PropMarketCap catalog cards as of 13.11.2026, Era Trade offers 1:100 on forex and crypto, FTMO offers 1:100 on forex, and HyroTrader offers 1:150 on crypto. SpiceProp and The Funded Way offer 1:100 on forex. The lowest leverage is at Hash Hedge, 1:5 on all instruments, and at Vanta Trading: 1:20 on forex and 1:2.5 on crypto.

The limits, meanwhile, are strict. Across 136 challenges in the catalog, the median daily loss limit for the first stage is 3%, and the overall limit is 8%. Let's calculate with high leverage. At 1:100 and a 10% limit, a position using the full leverage loses those 10% with a price move of just 0.1%. At 1:5 leverage, as at Hash Hedge, the same limit is reached with a 2% move.

Prop firms have their own leverage traps. FTMO calculates the daily limit based on equity, that is, including the floating result of open trades, minus swaps and commissions. In the 2-Step program, the daily limit is 5% of the initial capital, and the overall limit of 10% stays fixed. In 1-Step, the overall limit is the same 10%, but it trails at the end of the day: the threshold only moves up along with the balance. Era Trade limits the loss on a single trading idea to 2% of the starting balance, counting both floating and realized results. Trades on the same instrument in the same direction, opened with a gap of less than 60 minutes, are counted by the system as one idea. On a $100,000 account, that is $2,000.

The price of an attempt on a two-step $10,000 challenge: Era Trade $99, Hash Hedge $99, FTMO 89 euros, HyroTrader $119. According to prop firm rules and PMC cards, Hash Hedge and Era Trade accept traders from Russia. FTMO does not allow traders from Russia, Belarus, and Kazakhstan, but is open to Armenia, Georgia, Moldova, and Azerbaijan. Who else works with Russians is collected in the selection of prop firms for traders from Russia.

Before paying, test yourself against the same rules. Choose a challenge that fits your budget and limits in the challenge calculator and first practice with these limits on a demo account.

Summary

Leverage increases the position, and the loss grows by the same factor. The price move that wipes out the collateral equals one divided by the leverage, and the broker closes the trade even earlier. Before trading with leverage, learn to calculate position size and limits: start with the free PMC Academy lessons, which explain how to read the challenge rules and where the drawdown limits are hidden in them.