Margin and leverage describe different parts of the same decision. Margin is the capital required to hold a position; leverage describes how large the position is compared with that capital. Neither tells you the maximum amount you can lose.
Education only. This page does not give investment advice or recommend a trade. Leveraged products can involve substantial loss.
Look at notional value
Suppose a $1,000 margin deposit supports a $10,000 position. That is ten times the deposit in market exposure. A 2% move against the position would be a $200 loss before costs, equal to 20% of that deposit. This simple illustration does not include changing margin rules, financing, fees or slippage.
Know what margin does not do
Margin is collateral, not a purchase price or a fixed loss limit. A broker may require more funds or close a position when account equity falls below its rules. Those rules differ by product and jurisdiction. A price gap can also cause an exit at a worse price than planned.
Size from the loss you can bear
Before considering a leveraged trade, identify the level where the idea would be invalid, estimate the cash loss at that point and include expected costs. Then compare that loss with the amount you can afford to risk. If the numbers do not fit, a smaller position or no trade is a valid outcome.
Check overlapping exposure
Two positions can respond to the same event. Several currency pairs, indices or related commodities may create more combined risk than their separate position sizes suggest. Review total exposure rather than each trade in isolation.
Practice exercise
Using a hypothetical $10,000 position, calculate the effect of a 1%, 2% and 5% adverse price move before costs. Repeat with different margin deposits. Note how the market loss stays tied to the position value while its percentage of the deposit changes.
Sources and further reading
These articles were edited from the educational Word pack supplied for the academy and checked against the linked public sources.