Headline leverage is a limit your broker sets; effective leverage measures what you are actually using. This calculator puts both figures side by side on one screen, because conflating them is the central mistake it exists to address.
What leverage is and how it works
Leverage is the ability to control a large value with a smaller amount of capital. CME Group description explains the idea from a regulated exchange perspective: initial margin on futures is typically three to twelve percent of a contract notional value, so you control a full value with a small fraction of it. Leverage is therefore not money lent to you in the everyday sense, but a ratio between what you control and what you post as collateral.
The two figures everyone conflates
The two figures everyone conflates are headline leverage and effective leverage. The headline number is a fixed limit set by your broker, such as 1:100 or 1:500, and it tells you nothing about your risk because it is a ceiling rather than a measurement. Effective leverage is a moving measurement: your position notional value divided by your equity. FXCM defines it as the amount of equity being used in relation to the aggregate value of an open position. It changes with every change in size or balance.
Worked example: one lot on a 10,000 account
Take one standard lot of EUR/USD at 1.08500 on an account with 10,000 dollars of equity and a 1:100 headline ratio. Notional value is 108,500 dollars, so effective leverage is 108,500 ÷ 10,000 = 10.85, that is 1:10.85. Your equity represents 9.2166% of the notional value. Note the gap: the broker permits 1:100 and you are using only 1:10.85. The first number is a ceiling; the second is what you are actually carrying.
Worked example: only size changes exposure
Hold the account and the headline ratio constant and change only the size. At 0.10 lots the notional value is 10,850 dollars and effective exposure is 1.09. At one lot it is 10.85. At five lots the notional value is 542,500 dollars and effective exposure is 54.25. The headline ratio stayed at 1:100 in all three cases, and exposure multiplied fiftyfold between the smallest and the largest. Size alone moves this number. You can also convert a one percent move into an actual amount.
Worked example: cutting leverage does not cut exposure
Now the reverse: hold the size and change the headline ratio. The same one-lot trade at 1.08500 on a 10,000 dollar account, but with leverage cut from 1:100 to 1:30. Effective exposure stays at 10.85 with no change at all, because neither the notional value nor the equity moved. What changed is the margin held, from 1,085 dollars to 3,616.67 dollars, and the theoretical maximum size. Cutting leverage does not cut risk; it constrains the largest size available.
Why lot count is not a measure of size
Lot count is not a measure of size across instruments. One lot of EUR/USD at 1.08500 gives a notional value of 108,500 dollars, while one lot of gold on a hundred-ounce contract at 2,341.70 gives 234,170 dollars, more than double. The name is the same and the size is entirely different, because contract size and instrument price both differ. Anyone thinking in lots assumes equal risk in both cases, and it is not.
The inverse relation between leverage and margin
The relation between headline leverage and margin percentage is purely inverse, and OANDA documentation states it directly: leverage is the reciprocal of margin, and a 5% margin is the same as 20:1 leverage. In practice: 1:100 means 1%, 1:30 means 3.33%, 1:500 means 0.20%, and 1:1 means 100%. That percentage governs the margin held and nothing else; it has no bearing on your effective exposure, which is measured against equity rather than against the amount held.
The limits of this tool
Two explicit limits to this tool. The first is that the maximum size shown here is a theoretical figure derived from the margin formula, and it does not mean your broker will actually allow it; brokers apply extra constraints by instrument, by time and by account size. The second is that the exposure computed here covers a single position, and if you hold several open trades your total exposure is the sum of their notional values divided by your equity, which is higher than what you see here.
Frequently asked questions
What is the difference between headline leverage and effective leverage?
Headline leverage is a limit your broker sets and does not change with your trades. Effective leverage measures what you are actually using and changes every time you open or close a position. FXCM defines the second as the amount of equity being used relative to the aggregate value of an open position, and its two examples on the same page show effective leverage of 200:1 or 20:1 on the same account depending on lot size alone. The figure that describes your risk is the second one.
Why does the calculator ask for equity instead of balance?
Because equity is the capital actually available at this moment — the balance plus or minus the result of open trades. An account with a 10,000 balance and a 3,000 floating loss holds 7,000, not 10,000, and measuring exposure against the larger number flatters the picture. The measurement has to run against what remains, not what was deposited.
If I lower my headline leverage, does my risk fall?
Not by itself. The test case on this page shows that dropping from 1:100 to 1:30 while keeping the same trade size leaves effective leverage unchanged at 10.85. What changes is the held margin, which jumps from 1,085 to 3,616.67, and the maximum size the broker will permit. Risk falls by reducing size, not by reducing the headline ratio.
Is the maximum size shown here what my broker will allow?
No. It is a theoretical figure derived from the margin formula, and it assumes your entire equity is available as margin for a single position. In practice brokers apply additional limits: a maximum order size, higher margin on specific instruments, and restrictions around data releases. On top of that, opening a position that uses all your equity leaves zero free margin, so the first adverse move takes you to a stop out.
Why does one lot of gold carry more exposure than one lot of EUR/USD?
Because notional value depends on both contract size and instrument price. One EUR/USD lot is 100,000 units at 1.08500, a notional of 108,500, while a gold lot on a 100-ounce contract at 2,341.70 is 234,170. That is more than double, even though both are called ‘one lot’. It is a further reason not to treat lot count alone as a measure of size.
What effective leverage is right for me?
This calculator does not answer that and suggests no number. What it does is show your current exposure in figures and how large a price move it would take to move your account by a given amount. What suits you depends on your capital, your loss tolerance and your written plan — none of which any calculator holds. The practical starting point is deciding what you accept losing on a single trade, which is what the position size calculator does.