This article is for educational purposes only. Trading with leverage, margin, futures, or derivatives carries a high risk of rapid or total loss. This is not financial advice and should not be used to make trading decisions.
How To Choose Leverage Ratio in Forex
Choosing a leverage ratio in forex takes more than picking a number like 1:20, 1:50, or 1:100. The right ratio depends on how well you understand risk, how you manage volatility, and whether your strategy can survive losses without blowing up your account.
The truth is, there isn’t a single “right” answer for every trader. The best leverage depends on your risk tolerance, strategy, and experience in the market.
Traders who haven’t yet mastered risk management usually stay on the lower end. Only traders with a proven strategy and strong discipline should consider higher settings, and even then the focus should be on controlling exposure, not chasing larger trades.
In this guide, I’ll explain how to choose the right ratio for your situation, why time in the market matters, and what brokers actually let you adjust your leverage settings. For context, you might also want to read our breakdown of what 50x leverage really means, especially in terms of liquidation distance and how quickly trades can fail.
Keep reading, because choosing the wrong ratio can wipe out your account much faster than you think, while an appropriate ratio keeps you from exposing too much capital to sudden volatility.
Key takeaway
- Lower ratios are more manageable for traders who are still developing their risk discipline.
- Experienced forex traders with a short-term strategy such as scalping can opt for higher multiplier as long as proper risk management tools are used.
- The volatility of your market, your trading experience, and your current strategy are the three pillars that ultimately dictate what ratios you should use in forex.
What is the best leverage ratio for forex?
There is no one correct leverage ratio in forex trading. It all depends on the individual trader, their strategy, and how consistently they can manage losses. The focus should always be on protecting the downside first and building a risk routine that you follow even on your worst trading days.
If you haven’t spent time learning how leverage changes your risk profile, you won’t be able to control the extra exposure it creates. Sudden spikes that look harmless on a normal chart can hit much harder when your buying power is multiplied. A ratio that feels comfortable today can turn into a disaster the moment you hesitate, ignore your stop, or let a trade sit open a little too long.
Start by choosing a leverage level that gives you breathing room. A good test is this: if the position goes against you immediately, can you close it fast without hesitation or trying to “fight back” against the loss? If the answer is no, the ratio is too high for your current discipline.
Leverage should never make you trade bigger just because you can. It should make you trade smaller with more precision. The right ratio is the one that keeps your liquidation point far enough away for you to think clearly, execute your plan, and survive long enough to improve as a trader.
How to select the perfect ratio
When it comes to selecting margin ratio for your trading strategy you need to take into consideration a couple of factors.
These include:
- Time in the market: Very short-term strategies sometimes use higher ratios, but only if the trader can exit quickly and take losses without hesitation.
- Volatility: A highly volatile market is more risky and requires a lower ratio. Traders who trade highly volatile forex pairs should be cautious when selecting their ratio to keep risk under control.
- Risk tolerance: Your personal risk tolerance matters as well. The risk tolerance for each trader is different. Personal tolerance does not justify a higher multiplier. The only justification for more exposure is a strategy that has been tested and consistently managed without emotional decisions.
Take a look at the forex strategy you will use and decide whether it requires a high or low ratio.
Then, find out the average volatility of your forex market using a volatility indicator, I would recommend using ATR (Average True Range).
Lastly, examine yourself to see how much risk you are willing to take on while at the same time staying within the limit of how much risk your strategy allows.
Being comfortable with risk doesn’t mean you should size up. The market doesn’t care how brave you are. It only respects discipline.
Which platforms let you customize your ratio
There are plenty of high leverage brokers for forex that allows you to change the default ratio in your account.
Forex.com is a good example of a broker that lets you select your margin ratio.
To change the ratio on Forex.com you need to fill out a Margin Change Request.
Here you simply fill in the details and the new margin requirement that you wish to use.
Allowing traders to adjust their own settings is more transparent. It lets experienced traders reduce exposure or fine-tune risk, instead of being forced into a dangerous default multiplier.
Some brokers, such as IG markets do not allow you to lower or increase the leverage.
In our guide on how you can switch leverage on Meta Trader 4 you can read more on how to change the leverage on this trading platform.
Other platforms that let you choose your preferred multiplier are:
- Avatrade
- Exness
- Pepperstone
These are all recognized brokers with a top reputation in the forex industry.
Read this Reddit thread where they recommend Pepperstone as a top broker.
Things to consider
Here is a list of things to consider for those of you who are going to use credit in forex:
- Negative balance protection is key – The negative balance protection system is a risk management tool for markets that will prevent your margin balance from ever falling into negative. This means that you could get liquidated but you can never lose more than you have deposited into your forex broker.
- Never invest more money than you can afford to lose – This goes without saying but I highly recommend traders consider their initial investment as money that they can afford to lose. If you trade with “scared” money you will have a tough time staying rational during your open trades.
- Stick to one forex pair – Keeping several trades open at the same time is a very bad idea. This is because at any time the market can swing positively in your favor or negatively against you and you need to be ready to close a position or perhaps add to a winner during a break-out. This is easiest done when trading only one FX pair at the same time.
- Always use a stop loss – I can’t stress enough how important the stop loss is for each trade when using a ratio that is higher than 1:200. At any given moment the market can fall 10 or 20 pips which could mean losses well into hundreds or even thousands of dollars. A stop loss will prevent most trades from surprising you on the downside.
Conclusion
There isn’t a perfect leverage ratio for every forex trader. A number like 1:20 or 1:200 only matters if your strategy can survive losing trades without panic or oversized risk. Higher ratios work only for traders who exit fast, protect their account, and never argue with the market.
Leverage should make you careful, not ambitious. Pick a multiplier that gives you enough distance from liquidation to think clearly and follow your plan. If a small move against you feels stressful, the ratio is too high for your current discipline.
Your real edge is not the size of your buying power, it’s staying solvent long enough to trade well. Use leverage as a tool for precision, not as a shortcut to bigger profits.
Anton Palovaara
This article is published under Leverage.Trading’s Risk-First Education Framework, an independent learning system built to help traders quantify and manage risk before trading.
