What is leverage?
Leverage determines the exposure a trader can take relative to the account's nominal capital. At prop firms it ranges from 1:10 to 1:100 depending on instrument and programme, and bears only an indirect relation to real risk.
It is a frequent selling point, and one of the least relevant criteria for choosing a prop firm.
What it actually measures
Leverage of 1:100 on a $100,000 account allows a theoretical exposure of $10 million. That figure has no practical meaning: long before approaching it, your maximum drawdown would be consumed by the slightest adverse move.
The constraint that genuinely limits you is never leverage. It is drawdown. On a $100,000 account with a 10 % maximum loss, you have $10,000 of room for error — and that is the number that determines your position sizes, whatever leverage is advertised.
When it does matter
Leverage becomes a real constraint in two cases only.
On small accounts, low leverage can prevent you from taking a position large enough for the trade to make economic sense.
On certain specific instruments — equities, crypto — leverage is often much lower than on forex, sometimes 1:2. A strategy designed for forex therefore does not transfer unchanged.
Variation by programme
Several firms adjust leverage by account type: high on standard routes, reduced on tight-drawdown programmes or swing accounts. That reduction is not a penalty but a matter of consistency — a 6 % drawdown with 1:100 leverage would be consumed in minutes.
The habit to adopt
Do not compare firms on leverage. Compare them on the ratio between the profit target required and the drawdown allowed: that ratio is what measures how hard the route really is.
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Related terms
- Daily loss limit A daily loss limit is the maximum loss allowed on a single trading day. Separate from total drawdown, it resets each day and breaching it means, depending on the firm, the day is suspended or the account is closed.
- Drawdown Drawdown is the maximum loss allowed on a prop firm account before it is closed. It is expressed as a percentage or a fixed amount, and calculated under three models — static, end-of-day trailing or intraday trailing — with very different consequences.
- Equity Equity is the value of a trading account with open positions included, unlike balance which counts only closed trades. Most prop firms calculate their risk limits on equity.
- Lot A lot is the unit of position size on forex: one standard lot represents 100,000 units of the base currency. Prop firms often cap the cumulative volume allowed per day or per instrument.