📚 What You Will Learn
- ✓ What leverage really is and how it works in simple, everyday terms
- ✓ The difference between initial margin and maintenance margin
- ✓ How to calculate your leverage ratio and understand what it means for your risk
- ✓ What liquidation is and how to calculate your liquidation price
- ✓ The psychology of leverage and why it makes traders act emotionally
Part 1: What is Leverage?
The House Example
Let's start with something familiar: buying a house.
You want to buy a house worth ₱5,000,000. You save up until you have the full amount, then buy with cash.
If the house value goes up 10% → You made ₱500,000 profit (10% return)
If the house value goes down 10% → You lost ₱500,000 (10% loss)
You only have ₱500,000 saved. The bank lends you ₱4,500,000. This is 10× leverage.
If house goes up 10%: You made ₱500,000 profit on ₱500,000 = 100% return!
If house goes down 10%: Your entire ₱500,000 is wiped out = 100% loss!
See how a 2% price move affects returns at different leverage levels
Key Definition
When we write "10× leverage," your ₱1,000 can control ₱10,000 worth of assets.
Common Leverage Levels
| Market | Typical Leverage | Risk Level |
|---|---|---|
| Forex (Regulated) | 30× - 50× | ⚠️ High |
| Forex (Offshore) | 100× - 500× | 🔴 Extreme |
| Crypto Spot | 1× (No leverage) | ✅ Lower |
| Crypto Margin | 2× - 10× | ⚠️ High |
| Crypto Futures | 10× - 125× | 🔴 Extreme |
Part 2: The Reality of Leverage
Leverage doesn't just multiply your profits. It multiplies everything:
- ✓ Small wins become big wins
- ✗ Small losses become big losses
- ✗ Emotional stress increases dramatically
Adjust leverage to see how your risk level changes
The Leverage Multiplier Formula
| Price Move | 10× Leverage | 20× Leverage | 50× Leverage |
|---|---|---|---|
| 1% | 10% | 20% | 50% |
| 2% | 20% | 40% | 100% (Wipeout) |
| 5% | 50% | 100% (Wipeout) | — |
| 10% | 100% (Wipeout) | — | — |
Adjust the sliders to see how leverage affects your trading outcomes
Part 3: Initial Margin
What is Initial Margin?
Initial Margin is the minimum amount of your own money you need in your account to open a position.
Safe Rule: Have at least 2-3 times your initial margin in your account for breathing room.
Calculate how much margin you need for any position
Part 4: Maintenance Margin
What is Maintenance Margin?
Maintenance Margin is the minimum account equity you must keep to prevent your position from being closed.
Think of it as the "danger zone" line. If your account value falls below this, the broker takes action.
What is a Margin Call?
A margin call is a warning from your broker:
"Your account is too low. Add more money now, or we will close your position."
Part 5: Liquidation
What is Liquidation?
Liquidation is when the broker or exchange automatically closes your position because you've run out of margin.
This is not optional. You don't get a choice. The system closes your trade immediately.
Find out where your position gets automatically closed
Part 6: Mark-to-Market
What is Mark-to-Market?
Mark-to-Market means your account value is updated constantly based on current market prices, even while your positions are still open.
Your account balance changes every second the market moves.
Unrealized vs. Realized Profit/Loss
Unrealized P/L
Profit/loss on open positions. Also called "floating" P/L. Not real until you close.
Realized P/L
Profit/loss after closing. Final number. Real and permanent.
Part 7: Complete Trade Example
The Setup
Possible Outcomes
Part 8: The Psychology of Leverage
When new traders discover leverage, many think:
"If I can control ₱100,000 with just ₱10,000, why not use maximum leverage all the time?"
This thinking has destroyed more trading accounts than bad analysis ever has.
Click each stage to see the emotional journey of a leveraged trader
"This is going to make me rich!"
With low leverage, the same situations become manageable. Low leverage keeps you calm and rational.
Part 9: Your Safety Rules for Leverage
Part 10: Practice & Quiz
A) Position: ₱30,000 | Leverage: 10× — Initial margin = ?
B) Position: ₱100,000 | Leverage: 5× — Initial margin = ?
B) ₱100,000 ÷ 5 = ₱20,000
A) Entry: ₱1,000,000 | Leverage: 10× — Liquidation price = ?
B) Entry: ₱500,000 | Leverage: 20× — Liquidation price = ?
B) ₱500,000 - (₱500,000 × 5%) = ₱475,000
Key Terms Flashcards
Click each card to reveal the definition
- Leverage = Borrowed money to control bigger positions
- Initial Margin = Deposit to open a trade
- Maintenance Margin = Minimum to keep trade open
- Liquidation = Automatic position closure
- Mark-to-Market = Real-time P/L updating
- Account % Change = Price % × Leverage
- Liq. Price (Long) = Entry - (Entry × Margin%)
- Initial Margin = Position ÷ Leverage
- Start with demo trading first
- Use max 5× leverage as beginner
- Always know your liquidation price
- Risk only 1-2% per trade
- Never add money to losing positions
🎉 Congratulations!
You've completed the Understanding Leverage and Margin module.
Take a break, let this information sink in, then review any sections you'd like to reinforce.