Leverage and margin: how much of the trade is yours
What leverage actually changes in your account
Leverage is a ratio the broker applies to your deposit. It does not add money to your account. It sets the largest position you can open. At 1:100, each ₦1 of your money can support ₦100 of position value. At 1:500, each ₦1 supports ₦500.
The ratio is fixed by the broker, but you choose the position size. A smaller position uses less margin. A larger position uses more. Leverage only sets the ceiling, not the size you must trade. You can open a position far smaller than the maximum.
Changing leverage does not change the profit or loss on a position. One standard lot of EUR/USD moves the same naira amount per pip whether your leverage is 1:100 or 1:500. Only the margin locked changes. That is the whole effect.
How margin is calculated and returned
Margin is the part of your balance the broker sets aside while a trade is open. It is not a fee. It stays in your account but you cannot use it for new trades. The formula is position value divided by leverage. For EUR/USD at 1.0850, one standard lot is 100,000 units. Position value is $108,500. At ₦1,500 per dollar, that is ₦162,750,000. At 1:100, margin is ₦1,627,500. At 1:500, margin is ₦325,500.
The margin is locked, not spent. When you close the trade, the margin is released back to your usable balance. If the trade made a profit, your balance grows by that profit. If it made a loss, your balance falls by that loss. The margin itself is not deducted.
Brokers may round the margin figure, add a small buffer, or convert at their own exchange rate. Some brokers set higher margin before weekends or major news. The exact amount varies between brokers. Always check the margin shown in your trading platform before you open a trade.
Why the loss is never limited to your margin
Many beginners think the most they can lose is the margin locked. That is wrong. The loss is calculated on the full position value. If you open one standard lot of EUR/USD and the price moves 100 pips against you, the loss is 100 × ₦15,000 = ₦1,500,000. That is close to the margin at 1:100, but it is not capped there.
If the price moves further, the loss grows. It can exceed the margin. When your balance falls below the margin requirement, the broker may close your position automatically. That is a margin call. The broker closes to stop the loss growing beyond your deposit. You do not get to decide when.
The only way to control loss is to choose a position size where a bad move costs an amount you can accept. Decide that amount in naira first. Then work backwards to the largest position that keeps the loss within it. Leverage does not protect you. Position size does.
Margin on one standard lot at two leverage levels
| Step | Amount | Note |
|---|---|---|
| Position size | 1 standard lot EUR/USD | One standard lot is 100,000 units of the base currency, EUR. |
| Exchange rate used | 1.0850 | This is the EUR/USD price in the example. |
| Position value in USD | $108,500 | 100,000 units multiplied by 1.0850. |
| Position value in naira | ₦162,750,000 | Converted at an assumed rate of ₦1,500 per US dollar. Your broker's rate will differ. |
| Margin required at 1:30 | ₦5,425,000 | ₦162,750,000 divided by 30. |
| Margin required at 1:500 | ₦325,500 | ₦162,750,000 divided by 500. |
The broker may round the margin figure, add a small buffer, or quote the margin in US dollars and convert at its own rate. Margin requirements can also change before weekends and news events.
Doing it once, step by step
Here is how to work out the margin and the pip value for any EUR/USD trade, using the numbers from this lesson. Follow the steps in order.
- 01
Write down the exchange rate
Find the current NGN per USD rate from your bank or a trusted source. In this lesson it is ₦1,500 per dollar. This rate changes often. Use the rate you find today.
- 02
Calculate the position value in dollars
Multiply the number of units by the EUR/USD price. For one standard lot, that is 100,000 × 1.0850 = $108,500. For a mini lot, use 10,000 units. For a micro lot, use 1,000 units.
- 03
Convert the position value to naira
Multiply the dollar value by the exchange rate. $108,500 × ₦1,500 = ₦162,750,000. This is the full value of the position, not the margin.
- 04
Divide by your leverage to find margin
At 1:100, margin is ₦162,750,000 ÷ 100 = ₦1,627,500. At 1:500, margin is ₦162,750,000 ÷ 500 = ₦325,500. The broker may round this figure or add a buffer.
- 05
Work out the pip value in naira
One pip on one standard lot of EUR/USD is 10 US dollars. Multiply by the exchange rate: 10 × ₦1,500 = ₦15,000. This value changes when the exchange rate changes.
- 06
Decide the largest loss you will accept
Choose an amount in naira, such as ₦30,000. Divide it by the pip value to get the number of pips you can risk. ₦30,000 ÷ ₦15,000 = 2 pips. That is very small, so reduce your position size. For a micro lot, pip value is ₦150. ₦30,000 ÷ ₦150 = 200 pips. Choose the position size that fits your loss limit.
The mistake most people make here
The common mistake is to treat high leverage as free extra money and open a position far larger than the account can support. Leverage does not change the size of a loss or a gain on a position; it only changes how much of your own money is locked as margin. If the trade moves against you, the loss is calculated on the full position value, not on the margin. A safer approach is to decide the largest loss you are willing to take in naira first, then choose a position size that keeps that loss small relative to your balance.Check yourself
At EUR/USD 1.0850 and a conversion rate of ₦1,500 per dollar, what is the margin in naira for one standard lot at 1:100?
Position value is 100,000 × 1.0850 = $108,500. In naira that is $108,500 × ₦1,500 = ₦162,750,000. Margin at 1:100 is ₦162,750,000 ÷ 100 = ₦1,627,500.
One pip on one standard lot of EUR/USD is 10 units of the quote currency. At the same conversion rate, what is one pip worth in naira?
One pip is 10 US dollars. Converted at ₦1,500 per dollar, 10 × ₦1,500 = ₦15,000. This value changes when the exchange rate changes.
Questions that come up next
What does 1:100 leverage cost me in naira on this trade?
Leverage itself costs nothing. It is a ratio, not a charge. What it does is set the margin locked against the position. On one standard lot of EUR/USD at 1.0850, with the dollar at ₦1,500, the position value is ₦162,750,000. At 1:100 the margin locked is ₦162,750,000 divided by 100, which is ₦1,627,500. That money stays in your account but you cannot use it while the trade is open.
If I raise leverage to 1:500, does my profit per pip rise too?
No. The pip value is set by the position size, not by leverage. One standard lot of EUR/USD is still worth ₦15,000 per pip at a conversion rate of ₦1,500 per dollar. The same 100-pip move gives the same ₦1,500,000 result at 1:100 and at 1:500. Only the margin locked changes: ₦1,627,500 at 1:100 against ₦325,500 at 1:500.
Why is my margin figure different from the one I worked out?
Brokers do not all use the same method. Some round the figure, some add a small buffer, and some quote margin in US dollars and convert at their own rate rather than the rate you used. A few raise margin requirements before weekends or major news events. The amount therefore varies between brokers. Check the margin shown on your platform before you open the trade.
Can the broker take more than the margin I locked?
The margin is not the limit of your loss. Loss is counted on the full position value. If EUR/USD moves 100 pips against one standard lot, the loss is ₦1,500,000, which is close to the margin at 1:100 but not capped by it. A larger move gives a larger loss. When your balance falls below the required margin, the broker may close the position automatically to stop the loss growing further.
What happens to my margin when the trade closes?
It is released back to your usable balance. Margin is locked, not spent, so it is not deducted from your account. If the trade made a profit, your balance rises by that profit. If it made a loss, your balance falls by that loss. The margin itself returns either way, unless the position was closed at a loss that used part of it.
How do I pay money into a trading account in Nigeria?
Common methods are bank transfer, USSD and cards. The options and any charges vary between brokers, so compare what each one asks for before you deposit. Trading through a platform that accepts Nigerian clients generally means dealing with a firm registered with SEC Nigeria. Check that registration yourself rather than relying on an advertisement.
The words used on this page
- Leverage
- A ratio the broker applies to your deposit to set the largest position you may open. At 1:100, each ₦1 of your money can support ₦100 of position value. It does not add money to your account.
- Margin
- The part of your balance set aside while a trade is open. It is position value divided by leverage. It is locked, not spent, and is released when the trade closes.
- Position value
- The full size of the trade, counted in the quote currency. One standard lot of EUR/USD is 100,000 units, so at 1.0850 the value is $108,500. Loss and profit are counted on this full amount, not on your margin.
- Pip
- The smallest common price step in a currency pair. On one standard lot of EUR/USD it is worth 10 US dollars, which is ₦15,000 at a conversion rate of ₦1,500 per dollar. That naira figure changes when the exchange rate changes.
- Margin call
- What happens when your balance falls below the margin the broker requires. The broker may close your position automatically. It does this to stop the loss growing beyond your deposit.
- Standard lot
- A fixed trade size of 100,000 units of the first currency in the pair. On EUR/USD at 1.0850 it gives a position value of $108,500, or ₦162,750,000 at ₦1,500 per dollar.
What to take away
- Leverage sets the largest position your deposit can hold; it does not add money and does not change profit or loss per pip.
- Margin is position value divided by leverage, locked while the trade is open and released when it closes.
- The loss is counted on the full position value, so it is not limited to the margin you locked.
- Brokers round, buffer and convert differently, so the margin shown on your platform is the figure that counts.