Leverage is a powerful financial tool that allows traders to amplify their Buying Power far beyond their actual deposited capital (Equity). In the world of CFDs (Contracts for Difference), leverage acts as a mechanism where the trader provides a small portion of the trade value as collateral (Margin) and utilizes the broker's liquidity to control a much larger market position.
The Pros and Cons of Using Leverage
Leverage increases the potential for significant profits with a limited amount of capital. However, it also carries a higher level of risk. If the market moves against your position, it can lead to a rapid loss of capital. Therefore, professional traders prioritize risk management strategies, such as setting Stop Loss levels, to protect their portfolios.
Examples of Leverage in Action
The leverage ratio you choose directly impacts the total value of assets you can control:
Leverage 1:100: With $10 capital, you can control assets worth $1,000 ($10 \times 100$).
Leverage 1:500: With $10 capital, you can control assets worth $5,000 ($10 \times 500$).
Leverage Mechanisms on MetaTrader 5 (MT5)
The available leverage on MT5 varies based on the type of CFD instrument, account settings, and Liquidity Provider (LP) requirements. Understanding these variables is essential for effective risk management.
Below is a summary of the leverage settings for each supported asset type on MT5, along with the relevant details and calculation formulas.
Instrument Type | How Leverage Is Determined | Formula Used / Notes |
| Currencies (CFD) | Set when opening the trading account | No calculation formula is used |
| Metals & Energies (CFD) (except USOIL) | Set when opening the trading account | No calculation formula is used |
| Indices (CFD) | Depends on the Liquidity Provider | Leverage = (Open Price × Lot Size × Contract Size) / Used Margin |
| Stocks (CFD) | Depends on the Liquidity Provider | Leverage = (Open Price × Lot Size × Contract Size) / Used Margin |
| Cryptocurrencies (CFD) | Set when opening the trading account | Set when opening the trading account The same formula applies, but Leverage is divided by the Margin Rate (3) |
| USOIL (CFD) | Depends on the Liquidity Provider | A specific formula is used: Leverage = (Open Price × Lot Size × Contract Size) / Used Margin |
| General Combined Formula | — | Applicable to most assets: (Open Price × Lot Size × Contract Size) / Used Margin |
General Leverage Calculation Formula
For assets where the leverage is determined by liquidity providers—such as Indices (CFD), Stocks (CFD), and certain Energy (CFD) instruments—you can use the following formula:
Leverage = (Open Price × Lot Size × Contract Size) / Used Margin |
This formula helps you visualize the relationship between your entry price, contract size, and the actual margin used, allowing for more precise position sizing.
Key Technical Details for Specific Assets
Different asset classes on IUX have specific leverage rules that traders must be aware of:
Fixed Account Leverage: Instruments like Currencies (CFD) and Metals & Energies (CFD) (excluding USOIL) generally use the fixed leverage setting selected during your account opening process.
LP-Dependent Leverage: Assets such as Indices (CFD), Stocks (CFD), and certain Cryptos (CFD) may have dynamic leverage that changes based on market conditions or liquidity provider data.
Crypto (CFD) Special Rule: Cryptocurrencies use a unique leverage calculation. The account's set leverage is divided by a Margin Rate of 3.
USOIL (CFD) Exception: While it belongs to the Energy group, USOIL follows the same standard calculation formula as Indices (CFD).