Leverage sets how big a position you can open, and how close the stop-out sits
Leverage is position value divided by the margin you must post. At 30:1, a £30,000 position needs £1,000 of margin; profit and loss still run on the full £30,000. A leverage cap limits the largest position you can open. The distance to a forced close-out depends on how much of that capacity you use.
Retail caps on major currency pairs are 30:1 in the UK, the EU and Australia, 50:1 in the US and 25 times for individuals in Japan. Offers of 500:1 usually come from entities outside those rules, or from accounts where you have opted out of retail protection.
- How far is my stop-out?A worked GBP example
- Caps by countryUK, EU, Australia, US, Japan
- The professional-client routeWhat you must meet and what you give up
- Offers of 500:1What to check first
1. Worked example: the same £2,000, three position sizes hypothetical
Assume a £2,000 account trading a CFD on GBP/USD, with margin at 3.33% (about 30:1) and the UK retail close-out at 50% of required margin. For simplicity the example treats position value and P&L in pounds.
| Position value | Margin required | Close-out level (50% of margin) | Loss you can absorb before close-out | Adverse move that triggers it |
|---|---|---|---|---|
| £20,000 | £666 | Equity £333 | £1,667 | About 8.3% |
| £45,000 | £1,500 | Equity £750 | £1,250 | About 2.8% |
| £60,000 (maximum) | £2,000 | Equity £1,000 | £1,000 | About 1.7% |
Formula: absorbable loss = equity − (margin × 50%); trigger move = absorbable loss ÷ position value. At 500:1 the same £2,000 could open £1,000,000 of exposure, where a move of about 0.1% would reach the close-out level.
2. Retail leverage caps by jurisdiction
| Jurisdiction | Major FX pairs | Other underlyings | Source official |
|---|---|---|---|
| United Kingdom | Margin of at least 3.33% (about 30:1) | Major indices, minor FX and gold 5%; minor indices and other commodities 10%; shares and other assets 20% | FCA COBS 22.5.11R |
| European Union | 30:1 | 20:1, 10:1, 5:1 and 2:1 for crypto, by underlying | ESMA product intervention measures, applying to CFDs from 1 August 2018, later adopted nationally |
| Australia | 30:1 | 20:1 minor FX, gold, major indices; 10:1 other commodities, minor indices; 5:1 shares; 2:1 crypto-assets | ASIC CFD product intervention order, in force from 29 March 2021 and extended to 23 May 2027 |
| United States | Security deposit of at least 2% (50:1) | 5% for all other currency pairs (20:1) | 17 CFR 5.9(a)(1) |
| Japan | Individuals: margin of 4% or more (25 times), since August 2011 | Corporate accounts use a separate volatility-based rule | Financial Services Agency briefing, 13 February 2018 |
3. Close-out rules
In the UK, a retail client's net equity must not fall below 50% of the margin needed to keep positions open; below that, the firm must close positions as soon as market conditions allow (COBS 22.5.13R). The EU and Australian measures standardise close-out at the same 50% level and pair it with negative balance protection. Outside these regimes, close-out levels are whatever the client agreement says; find the number before you trade.
4. The professional-client route to higher leverage
Under FCA COBS 3.5.3R a firm may treat you as an elective professional client only if all of the following hold:
- Qualitative test.The firm assesses your expertise, experience and knowledge and has reasonable assurance you can make your own decisions and understand the risks.
- Quantitative test: two of three.Significant-size trades averaging 10 per quarter over the previous four quarters; a portfolio, including cash, above €500,000; or at least one year working in the financial sector in a relevant role.
- Written procedure.You ask in writing; the firm gives a clear written warning of the protections and compensation rights you may lose; you confirm in a separate document that you understand.
Editorial note The retail leverage caps, standard close-out and negative balance protection in COBS 22.5 apply to retail clients. Before opting up, list which of them you would lose.
5. When you are offered 500:1
- Identify the contracting entity.The offer is almost never from the group company holding a UK, EU or Australian retail licence. Check the name in your agreement against the register, or use the licence check.
- US residents: the CFTC publishes a RED list of foreign entities that appear to solicit US residents for products such as forex without the required registration, and points to NFA BASIC for checking registration. Listing is not a finding of violation, but absence from the list is not proof of registration either.
- Read the close-out and negative-balance terms.If neither is clear, plan as though you could lose more than your deposit.
6. Frequently asked questions
Does lower leverage make me safer?
Only through position size. A fully used 30:1 account still sits about 1.7% from close-out in the example above. Risk follows exposure relative to equity.
Why does one brand offer both 30:1 and 500:1?
Different group companies under different rules. The account's protections follow the company you contract with.
Is leverage the same as margin?
They are two views of one number: 3.33% margin equals about 30:1 leverage; 2% equals 50:1.
Sources and open items
- FCA COBS 22.5: 22.5.11R margin; 22.5.13R close-out.
- FCA COBS 3.5.3R: elective professional clients.
- ESMA final product intervention measures (1 June 2018).
- ASIC 20-254MR and 22-082MR.
- 17 CFR 5.9.
- Japan FSA briefing material 3, 13 February 2018.
- CFTC: additions to the RED list.