You use margin to create leverage.

Leverage is the increased “trading power” that is available when using a margin account.

By using leverage, it allows you to trade positions LARGER than the amount of money in your trading account.

Leverage is expressed as a ratio.

In addition, leverage is the ratio between the amount of money you really have and the amount of money you can trade.

It is usually expressed with an “X:1” format.

For example, if you wanted to trade 1 standard lot of USD/JPY without margin, you would need $100,000 in your account.

But with a Margin Requirement of just 1%, you would only have to deposit $1,000 in your account.

The leverage provided for this trade would be 100:1.

Here are examples of Leverage Ratios depending on the Margin Requirement:

Currency Pair Margin Requirement Leverage Ratio
EUR/USD 2% 50:1
GBP/USD 5% 20:1
USD/JPY 4% 25:1
EUR/AUD 3% 33:1