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 Does Leverage Affect Losses In Trading? Complete Guide
Understanding how leverage affects losses in trading is one of the most important skills for anyone who trades futures, margin, or other leveraged products in forex, crypto, or stocks. Losses behave differently when borrowed capital is involved, and these differences catch many traders off guard.
With leverage, a position can lose money at a much faster rate than a spot trade because the loss is calculated on the full notional size, not on the cash you deposited. This is why a small price move can wipe out a margin account, trigger liquidation, or lead to debt with certain brokers.
Before using leverage, traders should know how losses are calculated, when liquidation occurs, and when losses might exceed the initial deposit. These concepts are not removed by “high experience” or “good strategy.” They are structural consequences of margin trading.
This guide answers the most common loss-related questions in leveraged markets, including:
- Do you lose more money with leverage?
- Can a leveraged account go negative or into debt?
- Do you have to pay back borrowed capital when you lose?
- How much is the maximum you can lose?
Each answer focuses on loss mechanics, not trade optimization. The goal is to understand exactly what you are risking when you enter a leveraged position.
This material is written for traders who already understand spot markets and want clarity on how losses behave once leverage is introduced. Leveraged trading is a high-risk activity and is not suitable for inexperienced traders.
What happens when you lose money on leverage?
When you lose money with borrowed funding you only lose your margin capital which acts as risk capital which is the money you have deposited in your account.
Your margin capital is what supports your open positions and takes all the losses.
If you have deposited $500 in your account then you can withstand losses of up to $500 no matter what ratio you use.
The first thing you need to know about losing when trading with leverage is that the losses are proportional to your position size and not to the ratio you choose.
When you lose -1.50% on a position size of $25.000 with margin you lose the same amount as you would without credit, the loss is still going to be $375.
For example, if you have deposited $250 in your account and you use 100x leverage to trade $25.000 the effect on your loss will be the same as if you would deposit the full $25.000 in your account and start trading.
Now, what happens to traders when they lose is that they lose money faster due to high exposure to the market with low margin capital.
The losses feel bigger because a large position size loses more money per tick than a position in the spot market.
The losses that incur on your account are held open until you close out the position.
This means that until you have exited the position you haven’t lost anything, only on paper.
The open loss is later realized when you close the trade and the money is taken from your margin capital.
The calculation is made by your broker and the money is withdrawn from your balance instantly.
In high leverage trading, your losses increase further and it becomes more important for the trader to manage the risk associated with leverage in trading.
How much can you lose?
The amount of money that you can lose with leverage is proportional to your initial investment but in some rare cases, you can lose more money than you have deposited if you choose a malicious off-shore broker.
Your overall position size and movements in the wrong direction are what ultimately cause you to lose, and also how fast you lose your money.
A larger position will lose money faster than a smaller position simply because every price point is worth more money.
For example, if you lose 2% on a $500 trade your total loss is $10 while a 2% loss on a $50.000 trade is $1000.
Can your account go negative?
Yes, you can go negative when trading with margin if your broker doesn’t have negative balance protection.
This affects some types of asset classes such as Forex, Commodities, and Stocks, whereas crypto exchanges have built-in negative balance protection to prevent further losses than what a trader can handle, but this is not a guarantee for not losing money.
A negative balance happens when you borrow money on your margin balance and suffer losses that are larger than your initial deposit.
Let’s say that you make a deposit of $1000 and use a ratio of 1:50 leverage to trade stocks.
If you open a position worth $50.000 and the market falls 3% in a short period, here is what happens.
A 3% loss on a position size worth $50.000 is -$1500.
Since you only deposited $1000 you are now negative -$500.
You should always avoid trading with a broker that doesn’t offer this type of protection since you can never know how the market will react and we all make mistakes.
If you go negative it is your responsibility to pay back the money to the broker.
Can you go into debt with your broker?
Yes, you can go into debt with your broker if you choose one that doesn’t have negative balance protection or government regulation such as SEC or FCA and you take on more losses than your margin capital can support.
If you sign up with a broker that allows for a negative balance to occur you can go into debt.
All it takes is a loss that is larger than your initial deposit. This is easy to trigger if you use aggressive leverage and hold a losing position for too long.
Unfortunately, this still happens to many traders each year and it’s something that I hope will sooner or later disappear as a problem due to tighter regulations and requirements.
For example, all crypto exchanges have a built-in system that prevents any trader from reaching a negative balance.
The trading platform takes care of this itself and the worst thing that can happen is that you suffer a full liquidation from leverage.
If you make a deposit of $300 and your overall losses mount up to -$1500 on any given trade you will go into debt and owe the brokerage $1200.
When this happens I recommend that you contact the broker to see how you can resolve this immediately and follow instructions to not get in further trouble.
If this happens you need to treat it as a serious risk event, not something to brush off. The priority is to resolve the debt with the broker, step back, and reassess your entire risk process before you consider trading again.
Can you lose more than 100% of your capital?
Losing more than 100% is possible when using margin-traded contracts, however, it all depends on the trading platform you choose.
If the platform doesn’t support negative balance protection your account balance might go below 0%.
When this happens your account balance will show a negative number.
If you open a large leveraged position and the market turns against you it is possible to lose more than 100% if you are not properly protecting your risk.
This often happens to traders who ignore risk limits or do not understand how their margin and liquidation levels work.
This is very rare but if you are unlucky with the choice of broker and the market throws you off guard it can happen.
Make sure that you always stick to a negative balance protection broker that is regulated by your local government.
Most of the popular brokers will keep you out of problems but it is always wise to look up the platform you are thinking of joining.
Most operators will flag on their home page that they have negative balance protection but if you can’t find it make a quick Google search or ask the support staff in the live chat.
Do you lose more money with leverage?
Yes, you do lose more money with borrowed money since you are capable of entering the market with much more capital while only investing a fraction of your own money as a margin.
The ratio itself doesn’t make you lose more money but when you use it to open big positions then you can incur larger losses than you are used to.
What would be a normal 4% loss for a $400 account size will not be the same when you add a 75x margin to the mix.
An account of $400 with a ratio of 1:75 means that you can enter the market with a position size worth $30.000.
That 4% drawback would initially translate into a loss of only -$16 but with 1:75 it has now grown to a loss of -$1200.
This drawback would liquidate your entire account if you had not added a protective stop.
In this example, it is clear that credit makes you lose more money and the true story is that you lose more money faster.
This is because a large position shows a bigger loss for each point of drawback.
A drop of 15 points or 15 pips with a $400 position is nothing compared to a 15 pips loss with a $30.000 trade.
Keep this in mind when you are trading and always choose a good leverage ratio for a micro account.
What happens if you lose money in the crypto markets?
When you lose money in crypto trading the loss is directly proportional to your full position size and the bigger the position is the bigger the drawback becomes.
For example, if your initial investment is $500 and you use a ratio of 50x, your total loss will be calculated on the maximum position size which would be $25.000.
Let’s say that you lose -1.50% on your next trade.
The loss is calculated on the full position size of $25.000 and not your margin balance of $500.
In this case, the total loss would be $25.000 x 0.015% = -$375.
Most modern crypto derivatives exchanges are designed to prevent negative balances by liquidating positions before the account goes below zero. That does not make them safe overall. It only limits the loss to the margin you put at risk in that account.
This is not the case though with other leverage products such as forex, stocks, and derivatives.
If you lose money on a crypto trade you simply take the total loss in percentage and subtract the total loss from your account balance.
The ratio used is the most important thing when it comes to losing money.
A higher ratio does mean higher risk and you should be aware of how to manage your risk properly before you start.
How do you calculate a loss?
When calculating a loss on a leveraged trade you take the total position size and subtract the loss in percentage or points.
For example, if you open a trade worth $25.000 and take a -1.20% loss you lose $300.
Here is the calculation:
$25.000 x 0.0120% = $300.
When the loss is realized it will be taken from your margin capital, not from the borrowed capital you have used.
Let’s say that you deposited $2500, you use a ratio of 1:10 to open a position worth $25.000 and lose -1.20%.
The total loss is $300 as shown in the example above and this money will be taken from your initial deposit of $2500.
The money you have left in your account is now $2200.
Calculating your crypto leverage will help you understand how much money goes into each trade so you can plan and reduce potential losses.
The result from the calculation will show you the amount of money you need to deposit as margin capital which will also be your risk capital.
Can you lose all your money?
It is possible to lose all your money in margin trading if you are not using proper risk management.
Since the beginning, traders who borrowed money have been liquidated and lost all their money, even professional traders on Wall Street.
When your open position suffers a loss that is close to the amount of the initial deposit your broker will first send you a margin call telling you that you are running out of cash.
Pro tip: Use our margin call calculator to see the exact price where your position will trigger a margin call.
If the position proceeds to lose more money, you will run out of margin and you will lose all your money.
Trading with borrowed capital is a high-risk activity and every trader who uses a leveraged broker needs a clear plan for how to protect their downside.
Since it’s possible to open trades that are larger than your first investment, you run the risk of losing all your money if you are not careful.
To prevent losing all your cash I recommend that you read our tips for leveraged traders and implement all the risk mitigation strategies listed.
Is it possible to lose more than you invest with leverage?
Yes, you can lose more than you invest when speculating with leveraged contracts but only happens when you choose a shady broker without negative balance protection.
Since forex and many other leveraged products let you control far more exposure than the cash you have deposited, the absolute size of your losses can be much larger than most spot traders are used to.
A big position will generate big losses if the market turns against us and if you don’t stop out the position before it hits 0% margin, you can lose more money than you have invested.
In this case, you will go into debt with your operator and you need to resolve the issue as fast as possible.
Contact the support team and make sure that you handle the matter with care to avoid further conflicts.
Do you have to pay back leverage when you lose?
When you lose on a trade you do not need to pay back the credit since the loss does not affect your margin ratio.
Instead, when you lose, your margin balance will cover the loss and all the borrowed funds you have used for the position will be returned to your broker.
The borrowed money you receive from your trading platform is not affected by any loss.
The only thing you need to worry about when losing money on a position is to have enough margin balance in your account to cover the loss.
Your margin balance is the initial deposit that you made when you registered with the broker.
All profits and losses will be deducted or added to your margin balance when you close out each position.
Final words
This is a complete guide on how leverage affects losses in trading forex, crypto, and stocks. The concept of losing money with borrowed money can sometimes be tricky to understand but when you learn how to separate the borrowed money from your margin capital it all makes more sense.
After reading this article you should have gained a good understanding of:
- How leverage affects losses
- How you can calculate your own losses
- What happens during a market loss
- How much you can lose with leverage
As always, the core driver of your losses is the position size you take relative to your account and the distance to your stop or liquidation level. The leverage ratio changes how much notional you can take on and how quickly those losses hit your margin.
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.
