Tiered Leverage in Forex: How Margin Actually Steps Down

A broker advertising leverage of 1:1000 is not offering 1:1000 on the position you are about to open. It is offering it on the first slice of that position, and often only while conditions are calm. On a crypto derivatives venue leverage does something further still, since it also decides deleveraging exposure by ranking who is closed first.

Tiered leverage, also sold as dynamic leverage, splits a position into bands and prices each band differently. The headline number is the rate on the first band, which is the smallest one.

Two things follow from that, and most explanations of the topic get at least one of them wrong. The first is how the bands combine. The second is that the table can be replaced without notice.

What Tiered Leverage Is, and the Two Models It Can Mean

Fixed leverage applies one ratio to every position on the account. Tiered leverage sets a schedule of bands instead, and the ratio depends on where a position falls in that schedule.

The direction is always the same. Small exposure receives the high advertised ratio, and the ratio steps down as exposure grows.

The confusion starts because the term dynamic leverage is used for two different mechanisms that behave differently.

The first is volume-based. The trigger is position size or total exposure, usually measured in lots. IC publishes bands of 0 to 25 lots, 25 to 50, 50 to 100, and 100 or more for currency pairs.

The second is equity-based. The trigger is the money in the account, not the size of the trade. FBS publishes bands running from accounts under 200 units of the account currency down to accounts of 150,000 or more.

These are not variants of one idea. A volume tier responds to what you do; an equity tier responds to what your balance does.

A broker can run both at once, in which case the lower of the two ratios applies. Our guide to account types covers how these schedules differ between accounts at the same firm.

How the Tiers Are Applied: Incrementally, Not as One Flat Rate

This is the mechanical point that decides every number on the page, and published explanations disagree about it.

Under the incremental method, a position is cut at each band boundary. Each slice is margined at the rate of the band it sits in, and the results are added together.

Under a flat method, the whole position is margined at a single rate, usually the rate of the highest band it reaches.

The incremental method is the one brokers describe and the one that matches published tier tables. The flat method appears in explanations by accident, when a worked example prices an entire position at one band’s rate just after the text has described the incremental split.

Switch Markets describes leverage stepping down band by band, then gives an example that margins a whole position at the single lower rate. XBTFX describes the same structure and carries the split through correctly, cutting a 60-lot position at the 5-lot and 50-lot boundaries.

Both cannot be right, and the difference is not academic. It changes how much of the balance is frozen, and therefore how much free margin remains.

A Worked Example Where the Two Methods Disagree

Take a simple schedule of 1:1000 for the first 5 lots and 1:500 from 5 to 50 lots, and a position of 10 lots of EUR/USD at 1.1000. One standard lot is 100,000 units of the base currency, so the notional is 1,100,000 dollars.

Priced flat at 1:500, the position holds 2,200 dollars. Priced incrementally, the first 5 lots hold 550 dollars at 1:1000 and the next 5 hold 1,100 dollars at 1:500, for a total of 1,650 dollars.

The flat method therefore overstates the requirement by 550 dollars, which is a third more margin held on an identical position. If lot sizing itself is unfamiliar, our page on lot sizes sets out the units.

Applying real published figures makes the effect larger. The table below runs a 60-lot EUR/USD position at 1.1000 through IC’s published currency tiers, alongside the same position under the Higher Margin Requirement schedule covered in the next section.

All amounts are in dollars. The blended figure is what the position actually receives once the bands are combined, and it is far below the 1:5000 headline.

Pricing the same position flat at the top band it reaches, 1:1000, would hold 6,600 dollars instead of 2,566.67. Pricing it flat at the headline 1:5000 would hold 1,320 dollars. Neither is what the schedule produces.

The arithmetic for a single position, without tiers, is set out on our margin calculator, which also covers margin level and the distance to a stop out.

When the Advertised Tier Is Withdrawn

A tier table describes normal conditions. Several brokers publish a second table that replaces it at stated times, and this is the part that prose explanations of dynamic leverage leave out entirely.

IC describes periods subject to Higher Margin Requirements, during which, in its own words, available leverage is temporarily capped to help manage risk during elevated market volatility.

The windows it lists are not rare. They cover the 30 minutes before the daily close and the 15 minutes after the open, the period from an hour before Friday’s close until 30 minutes after Monday’s open, and from 15 minutes before until one minute after a high-impact news release.

Under that schedule the currency bands collapse. The 0 to 25 lot band moves from 1:5000 to 1:500, and every band above it moves to 1:200.

The consequence is visible in the table above. The same 60-lot position holds 2,566.67 dollars under normal conditions and 24,750 dollars under the higher requirement, roughly 9.6 times as much.

Stock CFDs at the same firm step down inside a single session, from 1:20 during core hours to 1:10 before the close and 1:5 into the final auction.

IC states that its leverage is dynamic and may change at any time, and that such changes may affect positions and margin requirements. A schedule that tightens before news and over the weekend removes the advertised ratio at exactly the moments a large position is most exposed. Our page on slippage and gapping covers what else changes in those windows.

Equity-Based Tiers and How They Interact With Volume Tiers

Equity-based tiers key off the account balance, and they move in the direction most traders do not expect.

FBS publishes bands in which an account holding under 200 units of the account currency is allowed up to 1:3000, an account from 200 to 4,999 up to 1:2000, from 5,000 to 29,999 up to 1:1000, from 30,000 to 149,999 up to 1:500, and 150,000 or more up to 1:400.

Read that sequence again in the direction an account actually travels. A trader who deposits more, or who is simply profitable, has their maximum leverage reduced.

The mechanism is also automatic. FBS states that it may adjust leverage for open and reopened positions based on those limits, so the change does not wait for the trader to do anything.

That is the interaction worth understanding. A volume tier changes when you change your position size; an equity tier can change while the position is untouched, because equity moves with every tick of floating profit or loss.

An account can therefore cross an equity boundary in the middle of an open trade, and the margin held against that trade can change as a result.

Why Your Regulator Decides Which Tier Table You See

Tier tables opening at 1:1000, 1:3000 or 1:5000 are not available everywhere, and the reason is not commercial.

The European Securities and Markets Authority restricted leverage for retail clients in a measure announced on 27 March 2018. The limits are 30:1 on major currency pairs, 20:1 on non-major pairs, gold and major indices, 10:1 on other commodities and non-major equity indices, 5:1 on individual equities, and 2:1 on cryptocurrencies. Those limits attach to retail clients specifically, and a trader who is reclassified as an elective professional client steps outside them along with the protections that accompany them.

A retail client of an entity regulated in the European Union therefore cannot receive a 1:1000 first band on EUR/USD, whatever the group’s international site advertises.

Large brokers commonly operate several entities under one brand, and the tier schedule follows the entity that holds the account rather than the brand on the homepage. Our page on which entity holds your account explains how to establish which one you contracted with.

The practical consequence is that a tier table found through a search may describe a different entity from the one available to a given reader. The schedule that applies is the one published for the entity named in the account documents.

What Tiered Leverage Does Not Change

Moving between tiers changes how much of the balance is frozen as margin. It does not change what the position gains or loses.

Profit and loss per pip is set by position size and the instrument, and nothing else. A 10-lot position makes and loses the same amount per pip whether it was margined at 1:500 or 1:5000.

What higher leverage changes is how much room is left. Holding less margin leaves more free margin, which allows a larger position to be opened, and it is the larger position that carries more risk.

That distinction matters because the marketing runs the two together. A higher tier is described as capital efficiency, and it is, but efficiency in held margin becomes additional risk only if the freed capital is used to add exposure.

The reverse case is the one that catches accounts out. When a schedule tightens, held margin rises on positions that are already open and free margin falls. From that point the account is governed by its forced liquidation thresholds rather than by the tier table.

An account that looked comfortable can then approach a stop out without the market having moved against it any further. Position sizing, rather than the tier, is what controls that exposure, and our page on risk management and position sizing covers it.

Who This Is Not For

This page will not help a reader looking for the highest leverage available. The figures quoted are published examples used to show how a schedule works, not an endorsement of any firm or ratio.

It is also not a sizing method. Nothing here indicates how large a position should be, and a tier that permits a larger position is not a reason to open one.

Readers on an entity with a regulatory cap will find most published tier tables do not apply to them at all. Checking the entity is more useful than comparing headline ratios.

Frequently Asked Questions