Forex glossary
Leverage
Documentation context: The cited KNF decision concerns retail CFDs in Poland and distinguishes experienced retail clients; the limit also depends on the instrument class.
Leverage provides exposure greater than required margin. The notional-to-margin limit differs from actual notional relative to equity; a CFD does not necessarily involve borrowing the remaining cash. Legal limits depend on jurisdiction, product and client status, including Poland's experienced-retail category.
Illustrative example
How does it work in practice?
Suppose a position has a notional value of 30,000 USD and account equity is 2,000 USD. Exposure relative to equity is 15:1 in this model; that does not identify the provider's maximum offered leverage.
Margin is not the size of the position
Contract units, notional and leverage
EUR/USD model: one lot is 100,000 EUR; the rate is 1.10 USD per EUR. For a 0.20-lot position, assume equity of 5,500 USD and margin at 5% of notional.
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| Term | What it describes | Shared example |
|---|---|---|
| Lot (position unit) | A contract unit, not the account currency. | This specification defines one lot as 100,000 EUR. |
| mini lot (0.1 lot) | One tenth of a standard lot. | 0.10 lots represents 10,000 EUR. |
| Micro lot (0.01 lot) | One hundredth of a standard lot. | 0.01 lots represents 1,000 EUR. |
| Position size (lot quantity) | The lot count or unit quantity selected for a position. | 0.20 lots × 100,000 = 20,000 EUR. |
| Position notional (notional value) | Exposure stated in a currency, distinct from margin. | 20,000 EUR × 1.10 = 22,000 USD; 5% margin is 1,100 USD. |
| Leverage | Actual exposure relative to equity, distinct from notional relative to margin. | 22,000 / 5,500 = 4:1 effective leverage; 22,000 / 1,100 = 20:1 relative to margin. |
Takeaway: Convert lot count through contract size into notional first. State the denominator before calculating a leverage ratio.
Change an assumption, see the result
What changes if…?
Hold the position fixed while changing equity and the assumed margin requirement. Observe which input changes effective leverage and which changes required collateral.
Linear USD exposure model: margin = notional ÷ offered leverage; effective leverage = notional ÷ equity. Hypothetical fixed margin rate, no costs or currency conversions. The value 30 is not a global limit or recommendation.
Check your understanding
Distinguish notional-to-equity from notional-to-margin.
Show the answer and explanation
6:1
30,000 / 5,000 = 6:1. The margin requirement differs from actual exposure relative to the whole account’s equity.
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Related terms
Sources and documentation
- MetaTrader 5: executing trades
Execution modes, requotes, position handling and local trailing on this platform.
Document read: - KNF Decision No. DAS.456.2.2019 of 1 August 2019
The Polish decision defines initial-margin and account-based close-out requirements for retail CFDs, with separate conditions for experienced retail clients.
Document read:
The example illustrates the mechanism. Check current account conditions and instrument specifications with the provider.