Leverage lets a small amount of margin support a larger position. It does not make that position less risky. This guide explains exposure, margin and losses using hypothetical rand examples for South African beginners.
Risk information: Leveraged forex and CFDs can cause rapid losses. This is general education, not a recommendation to trade, a suggested leverage setting or personalised financial advice.
Leverage, exposure and margin: three different numbers
Exposure is the value of the position you control. Margin is the amount required to open or maintain it. Leverage describes their relationship. In a simplified example, 20:1 leverage means R1 of required margin supports R20 of exposure.
Required margin = position exposure ÷ leverage ratio.
For R20,000 of exposure at 20:1, required margin is R1,000. Margin is not a fee and is not the maximum possible loss. Actual requirements depend on the instrument, account, currency conversion and broker terms.
Same position, different margin
The following arithmetic keeps exposure fixed at R20,000. It assumes a linear product whose gain or loss changes proportionally with the underlying price, with no currency conversion or trading costs.
| Leverage | Required margin | Loss after a 1% adverse move |
|---|---|---|
| 10:1 | R2,000 | R200 |
| 20:1 | R1,000 | R200 |
| 50:1 | R400 | R200 |
The loss is the same because the position is the same. Higher available leverage reduces the opening margin in this example; it does not reduce the price risk. These are illustrative ratios, not South African legal limits or account offers.
Same account balance, different exposure
Now assume an account has R2,000 of equity and compare three position sizes. Equity means the account value including unrealised gains and losses.
| Position exposure | Exposure ÷ equity | Loss after a 1% adverse move | Share of starting equity |
|---|---|---|---|
| R10,000 | 5 times | R100 | 5% |
| R20,000 | 10 times | R200 | 10% |
| R100,000 | 50 times | R1,000 | 50% |
A small percentage change in the underlying market can be a large percentage change in a small account. These figures exclude spread, commission and overnight charges. Real forex profit and loss may also require conversion from the quote currency into the account currency.
Free margin and automatic close-out
In a simplified account, free margin equals equity minus used margin. If equity is R2,000 and used margin is R1,000, free margin is R1,000. A R200 unrealised loss would reduce equity to R1,800 and free margin to R800, assuming the margin requirement stayed unchanged and there were no other positions or charges.
Read the broker’s definitions of margin level, margin call and stop-out. Do not assume a warning will arrive before positions are closed. Thresholds, calculation methods and which positions close first are account-specific. A larger available balance does not make a losing position profitable.
Questions to answer before using a live account
- What is the full exposure of the proposed trade, rather than only its margin?
- How much would a specified adverse price move cost in the account currency?
- What spread, round-trip commission and overnight charges apply?
- Can the margin requirement change around news, weekends or higher account equity?
- What are the close-out rules and any negative-balance-protection conditions?
- Which company supplies the product, and which agreement governs the account?
If you cannot explain these numbers, use our demo-account worksheet to practise the calculations before considering a live account. No leverage ratio makes trading safe.
Does an overseas licence give a South African account the same protections?
Do not infer your protections from another company in the broker’s group. The UK FCA describes leverage limits and other protections for the retail CFD business covered by its rules. Those UK rules are not automatically the terms of a South African or offshore account. Check the contracting entity and account documents using our FSCA broker-check guide.
Sources and editorial method
Source-checked 8 October 2026. The US CFTC forex advisory explains that margin amplifies gains and losses and that losses can exceed the initial deposit. The UK FCA CFD information explains its retail protections and the importance of identifying the actual account company. These overseas sources support the educational concepts; they do not establish South African permissions or a particular account’s protections.
FXJohn prepared the rand examples as original arithmetic illustrations, with AI assistance and source checking. They are not market quotes, account offers or results of live trading tests. Read our research standards, cost guide and risk information.