Leverage, margin calls and liquidation: the full exposure

Leverage means the position's notional exposure is larger than the capital initially posted. Margin is the collateral required to open or maintain that exposure; it is not the total price risk. A liquidation can close a position before a planned exit, and rules differ across securities margin, futures, retail FX and CFDs.

A 5x illustration, not a safe setting

Suppose $1,000 supports a hypothetical $5,000 notional position (5x exposure). A 2% adverse move on $5,000 is $100 before costs, or 10% of the $1,000 collateral. A 20% adverse move is $1,000 on paper, equal to that collateral. In practice the broker may require additional funds or close the position before that point, and a gap can cause a different result. Fees, contract multipliers and maintenance margin alter the example. This arithmetic explains exposure; it does not suggest using leverage.

What happens around a margin call

1. The account has an initial margin requirement and usually an ongoing maintenance requirement. Both are set by rules and the provider's own terms.
2. If equity falls below the relevant threshold, the firm may request more collateral, restrict new orders or liquidate positions.
3. There may be little or no time to respond. A forced sale can crystallise a loss, and a sharp gap can exceed the margin amount.

FINRA's US securities margin disclosure explicitly says a customer can lose more than deposited and that a firm may force sales without contacting the customer. In other products, some retail-client safeguards can apply under particular rules; they are not a universal promise. For example, ASIC MoneySmart says wholesale CFD clients may not have retail negative-balance and margin-closeout protections. The FCA's CFD information warns about the risks of opting into professional status. Check the current status and terms of your own account.

A stop is not margin protection

A stop-market order becomes an attempt to sell or buy after a trigger. It may execute through the stop price, especially in a gap or a thin market; a stop-limit can remain unfilled. Margin liquidation is a separate process governed by the provider's rules, not by where a trader hoped to exit. The order guide lays out both order behaviours, while the risk worksheet asks what happens if the planned exit is unavailable.

Questions to take to the actual agreement

• What is the instrument's contract size, notional exposure and initial/maintenance margin?
• What price or equity condition triggers a call or automatic liquidation? Can house requirements change?
• Are there daily settlement, expiry or rollover obligations?
• Does any negative-balance protection apply to this product, entity and client category?
• Can a loss exceed deposited funds, and which balances or other positions may be sold?

A full position can be risky without leverage; leverage increases the speed at which a small price move becomes a large percentage change in collateral. No risk rule or calculator guarantees that losses stop at a planned number.

Sources and further reading

Links were reviewed 2026-09-24. Regulatory permissions, firm status and product terms can change; use the current official register before acting.

1. FINRA — Margin Disclosure Statement
2. ASIC MoneySmart — CFDs and margin
3. FCA — contracts for difference

Keep learning

• A trading risk plan before the first order
• Stocks, forex, futures and CFDs: what you actually hold
• How to check a trading broker in the US, UK, Canada and Australia