Leverage is the term used to describe your ability to control a large amount using little or even none of your own money, and borrowing the rest. Leverage is expressed in ratios – so if, for example, you were controlling a $100,000 position, with only your $1,000 from your own account, your leverage would work out at 1:100. Your Forex profits will be calculated by this leverage ratio – the higher the ratio, the better your potential return.

Margin is the deposit you had to make in order to gain leverage. So, in our 1:100 ratio from earlier, your margin was the $1,000 you paid yourself. This margin acts as a “good faith deposit” which enables you to hold your position. It’s usually expressed as a percentage of the full amount of the position. For example, most Forex brokers say they require 2%, 1%, 0.5% or 0.25% margin.