Glossary
Leverage
The ratio of a position's value to the margin needed to open it. At 20:1, a margin of 2,000 USD controls a position worth 40,000 USD.
Leverage is the ratio between the value of a position and the margin, the deposit the broker holds to keep it open. Margin is the inverse of leverage: 20:1 means 5% margin. Leverage does not set the risk of a trade; position size and the stop-loss do. It sets how much of the account is tied up and how close you are to a margin close-out.
Example
With gold at 4,000.0, a 10-ounce position is worth 40,000 USD. At 20:1 the required margin is 40,000 ÷ 20 = 2,000 USD. A 1% move in gold, 40 USD per ounce, changes the result by 400 USD: 20% of the margin. In the EU, ESMA caps retail leverage at 30:1 for major currency pairs and 20:1 for gold and major indices.
Why it matters
High available leverage makes it easy to open positions far larger than the account can absorb. Size each trade from the money at risk to the stop-loss, not from the margin the broker allows.