Leverage in gold trading
Leverage lets you control a gold position worth many times your deposit; 100:1 means $4,000 of margin controls $400,000 of gold, magnifying gains and losses.
Also called Gearing, Margin ratio
Leverage is the ratio between the notional value of a position and the margin required to open it. At 100:1, each $1 of margin controls $100 of gold. At 20:1, the cap for retail clients in the EU, UK and Australia, each $1 controls $20. Leverage does not change the size of a price move; it changes how large a position a given deposit can hold.
How it applies to gold trading
Consider one standard lot at $4,000, a $400,000 notional position. At 100:1 the margin is $4,000; at 20:1 it is $20,000. In both cases a $10 move changes the account by $1,000. The difference is how much of the account is left as free margin to absorb that move. With $5,000 in the account at 100:1, a $10 adverse move is 20% of equity; at 20:1 the trade could not be opened at all.
Higher leverage therefore lets a trader take positions that are too large for the account, which is the real danger. The leverage setting itself costs nothing; the position size chosen because of it is what determines risk.
A common mistake
Believing that lower leverage is “safer” in itself. A 0.10-lot position has the same dollar risk at 20:1 as at 500:1. Safety comes from position size relative to the account, not from the leverage ratio.
See also: Margin, Notional value, Margin level, Position sizing.
Frequently asked questions
What leverage is allowed on gold?
It depends on the jurisdiction. Retail limits are 20:1 in the EU, UK and Australia; other regulators allow higher or set no cap. Professional clients and futures accounts have their own rules.
Does higher leverage mean higher profit?
Only if you use it to take a bigger position, in which case it also means a bigger loss. For the same lot size, profit and loss are identical at any leverage; only the margin locked up differs.