To help display how leverage is calculated, let's look at
two traders, Trader A and Trader B.
If Trader A has an account
leverage of 5:1 and they wish to use $1,000 on one trade as margin, they will have
exposure of $5,000 in base currency ($1,000).
5 x $1000 = $5,000 (trade value).
If Trader B has an account
leverage of 30:1 and they wish to use $1,000 on one trade as margin, they will have
exposure of $30,000 in base currency ($1,000).
30 x $1000 = $30,000 (trade value).
Trader B could open a position
with the same value as Trader A using only a fraction of the $1,000 in their trading
account. As the margin requirement of Trader B is only 3.33% (30:1), they would be
able to open a position with a value of $10,000 with just $333.
$10,000 x 0.033 = $333