How leverage works
Leverage lets you open a position larger than your cash balance. With 1:100 leverage, $100 of margin controls a $10,000 position. If the market moves 1% in your favour, you make $100 (100% of your margin); if it moves 1% against you, you lose $100 — your whole margin.
The margin is a good-faith deposit the broker holds while the trade is open. Leverage doesn't change how much you can lose on the market — it changes how little of your own cash is needed to take on that market exposure.
Margin calls and liquidation
As a losing position moves against you, it eats into your usable margin. When your account falls below the broker's maintenance margin, you get a margin call, and if it keeps falling the broker will automatically close (liquidate) positions to stop your balance going negative.
This is why high leverage is dangerous: at 1:500 or 1:1000, normal daily volatility can be enough to trigger liquidation before your idea has time to play out.
Why regulators cap it
Tier-1 regulators limit retail leverage — around 1:30 on major FX in the EU and UK, 1:50 in the US — because most retail accounts lose money and excessive leverage accelerates those losses. Offshore brokers advertising 1:1000+ aren't giving you an edge; they're removing a guardrail.
If you're new, treat leverage as risk to be managed, not firepower to be maximised. Position sizing and stop-losses matter far more than the leverage number a broker advertises.