Separate the limit from usage

The maximum permitted leverage is a limit, not a required position. Actual leverage reflects notional exposure relative to equity. Identical account settings can produce different risks when position sizes differ.

Calculate from exposure

With hypothetical equity of 1,000 and exposure of 10,000, an adverse 1% move produces roughly 100 of loss before costs, or 10% of equity. Exposure drives the sensitivity.

Check the contractual safeguards

Margin availability, close-out thresholds and negative-balance treatment depend on terms. Neither an ordinary stop price nor initial margin is a universal guaranteed loss cap. Gaps, slippage and costs can affect outcomes.

Record the actual usage

An account may permit high leverage while its current notional exposure is only twice equity. Analyse the position actually held. Keeping permitted limits and current usage in separate fields prevents an account's advertised maximum from replacing the exposure calculation.

Source and reading notes

This is an independently written educational overview based on the ATFX reading linked below. Examples are illustrative, not live quotes or forecasts. It does not reproduce the original article or imply endorsement by its author.