Leverage Does Not Set Your Risk: Margin, Margin Level and Stop-Out Explained

Buyers ask whether an EA "needs 1:500", or whether 1:30 is "safer". Neither question is quite right. Leverage does not set how much you lose on a trade — lot size does, and 0.5 lot loses the same per point at any leverage. Leverage sets how much margin each position locks, and therefore how close you sit to the broker's stop-out.

Margin is what the broker locks for an open position: notional value divided by leverage. Free margin is equity minus locked margin — what is left to absorb floating loss. Margin level is equity divided by locked margin, in percent. When it reaches the broker's stop-out level, commonly 20% to 50%, the broker closes your positions for you, largest loser first, at whatever price is available.

Take 0.5 lot of gold at 2,000, 100-ounce contract, notional 100,000. At 1:30 the locked margin is about 3,333; at 1:500 it is 200. On a 10,000 account with a 50% stop-out, the 1:30 account is stopped out when equity falls to about 1,667 — a floating loss of 8,333, a 167-dollar move at 50 per dollar. The 1:500 account survives until equity is 100, a 198-dollar move. So the broker closes the 1:30 account on a move the 1:500 account survives, with 1,667 still in it. Neither is a position to hold on 10,000, but the forced exit sits in a different place depending on a number you may never have looked at.

The 1:30 trader dies from margin. The 1:500 trader dies from lot size, because 200 of margin for 0.5 lot makes 5 lots look affordable, and 5 lots of gold loses 500 per dollar: a 20-dollar move ends the account. Lot size caused that loss; high leverage is what let the order through. Low leverage forces you to under-size, high leverage lets you over-size, and most blown accounts are the second case.

The tester has a leverage setting, and the report was produced with one value. On an account with different leverage the trades are identical until the first time margin binds — then not at all: the tester opened a position your broker refuses, or held through a drawdown where your broker stops you out. Grid and averaging EAs are the most sensitive: every added level locks more margin while equity is already falling, so margin level drops from both sides at once, and a basket that survives at 1:500 in the report can be liquidated at 1:100. Set the tester's leverage to your account's before you trust any grid result.

Many brokers assign their own margin rates to indices, crypto and some metals, regardless of account leverage. A 1:500 account can hold gold at 1:500 and a crypto CFD at 1:5 on the same login, and swap-free accounts sometimes carry higher rates too. Account leverage is a ceiling, not a promise; the symbol specification in the terminal holds the real figure.

Open the specification of the exact symbol, with its suffix, at the broker you will use. Read the contract size, the margin rate and any hedged-margin rule. Compute what the EA's maximum simultaneous exposure locks, and where that leaves your margin level in its worst backtested drawdown. Then choose the preset. In the other order, you end up asking why an EA that "never lost more than 20%" in the report closed your account at 50%.

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