Module 2: Brokers, Accounts and Platforms (UK) · Lesson 5 of 11 · Back to course
Leverage lets you control a large position with a small deposit, called margin. It’s the feature that makes spread bets and CFDs attractive – and the main reason most retail accounts lose money. Since 2019, the FCA has capped how much leverage UK firms can offer retail clients, and added rules about what happens when your account runs low. This lesson explains those rules with numbers in pounds.
Leverage and margin in plain English
If a market needs 5% margin, you put up £5 for every £100 of exposure. That’s leverage of 20:1. Your profit or loss is based on the full £100, not the £5.
- Exposure (or position value) = price × size.
- Margin required = exposure × margin rate (or exposure ÷ leverage).
The FCA’s retail leverage limits
Under the FCA’s permanent rules for CFDs and spread bets sold to retail clients (FCA PS19/18), the maximum leverage is:
| Underlying market | Maximum leverage | Minimum margin |
|---|---|---|
| Major currency pairs (any two of USD, EUR, JPY, GBP, CAD, CHF) | 30:1 | 3.33% |
| Non-major currency pairs, gold and major stock indices (e.g. FTSE 100, DAX, S&P 500) | 20:1 | 5% |
| Commodities other than gold, and non-major indices (e.g. oil) | 10:1 | 10% |
| Individual shares and other markets | 5:1 | 20% |
| Cryptocurrencies | Crypto derivatives can’t be sold to UK retail clients at all | – |
These are maximums. Firms can ask for more margin, and many do on volatile markets or around big events.
The margin close-out rule
The FCA also requires firms to close out retail positions when your account equity falls to 50% of the margin needed for your open positions. In other words, the platform will start closing your trades automatically before the account is wiped out – one position at a time, often starting with the biggest loser.
Firms may warn you earlier with a margin call message, but they don’t have to wait for you to respond. In fast markets, a close-out can happen at a worse price than the 50% level.
Negative balance protection and no bonuses
Two more parts of the same rules:
- Negative balance protection: a retail client can’t lose more than the money in their CFD/spread bet account (see Lesson 2.4).
- No trading incentives: firms can’t offer retail clients bonuses, gifts or other benefits to get them to trade CFDs.
- Standard risk warning: firms must show the percentage of their own retail accounts that lose money.
Worked example: margin in pounds (illustrative numbers)
All figures are made up for teaching purposes. They aren’t real prices or a trade idea.
Account balance: £2,500.
Trade 1 – UK 100 spread bet at £2 per point, price 8,000. – Exposure: 8,000 × £2 = £16,000. – Margin at 5% (20:1): £800.
Trade 2 – GBP/USD at £3 per point, price 1.2700. – For FX spread bets, providers typically work out exposure as price × 10,000 × stake: 1.2700 × 10,000 × £3 = about £38,100. – Margin at 3.33% (30:1): about £1,270.
Total margin used: £2,070. Free money left: £2,500 − £2,070 = £430.
Now the margin close-out level: 50% of £2,070 = £1,035. If losses take your account equity from £2,500 down to £1,035 – a loss of about £1,465 – the firm must start closing positions. That would happen if the UK 100 and GBP/USD each fell about 290 points at the same time (290 × £2 + 290 × £3 = £1,450, plus spreads), or if one of them fell much further on its own. On a volatile day that’s possible – and notice how little room the £430 of free money leaves.
Leverage isn’t the same as risk
Here’s the key point: the margin doesn’t decide how much you can lose on a trade. Your size and your stop do.
If Trade 1 has a stop 25 points away, the planned loss is 25 × £2 = £50, or 2% of the account – whatever the margin is. High available leverage only becomes dangerous when it tempts you to trade bigger than your risk rules allow, or to trade without a stop.
Why lower leverage protects beginners
Before the rules, some firms offered 200:1 or more. With 200:1, a £2,500 account could hold £500,000 of exposure, and a 0.5% move against you would wipe out the account. The FCA’s research found that higher leverage was linked to bigger losses for retail clients. Lower limits mean small mistakes are less likely to be fatal.
“Professional” status and offshore entities
Some firms offer to reclassify you as a professional client, or to move your account to an overseas entity, so you can use higher leverage. To qualify as an “elective professional” you normally have to meet tests on trading activity, portfolio size and relevant experience. If you opt up, you usually lose:
- the retail leverage limits,
- negative balance protection, and
- some complaint and compensation rights.
For a beginner, this is almost never worth it.
Common mistakes
- Treating margin as the risk. Margin is a deposit; your stop and size decide the risk.
- Using all available margin. It leaves no room for normal swings and puts you close to a close-out.
- Forgetting margin changes. Firms can raise margin rates – for example before elections or holidays.
- Chasing higher leverage offshore. You trade away protections you’ll want on a bad day.
The prop firm angle
Prop firms aren’t bound by the FCA’s retail CFD rules for their simulated accounts, so challenges often allow more leverage than a UK retail broker. That makes it easy to open huge positions – and huge positions are one of the fastest ways to break a daily loss limit. Size your challenge trades from your stop and your risk per trade, exactly as in this lesson, and ignore how much leverage is “available”.
Key takeaways
- UK retail leverage is capped at 30:1 for major FX pairs, 20:1 for non-major FX, gold and major indices, 10:1 for other commodities and non-major indices, and 5:1 for shares. Crypto derivatives are banned for retail.
- Firms must start closing positions when your equity falls to 50% of required margin.
- Retail clients get negative balance protection and can’t be offered trading bonuses.
- Leverage sets the margin; your stop and size set the risk (see position sizing and the 1% rule).
Quick quiz
- What’s the maximum leverage on the FTSE 100 for UK retail clients? (20:1, or 5% margin.)
- Your positions need £1,200 of margin. At what equity level must the firm start closing them? (£600 – 50% of the margin.)
- Is AUD/USD a “major” pair under the FCA’s leverage rules? (No – it’s limited to 20:1.)
- A spread bet at £4 per point has a 20-point stop. What’s the risk, whatever the margin? (£80.)
- Name two protections you may lose by becoming a professional client. (Retail leverage limits, negative balance protection, some complaint/compensation rights.)
Key terms
Leverage · Leverage ratio · Margin · Margin call · Close-out · Exposure · ESMA leverage limits · Retail client · Negative balance protection
Try this
On your demo account, open one small trade on the UK 100 and one on GBP/USD. Find where the platform shows margin used, free margin and margin level (often shown as a percentage). Write down each figure. Then work out, on paper, how far each market would have to move against you to reach the 50% close-out level. Close the trades and compare your maths with the platform’s numbers.
FAQ
What does 30:1 leverage mean? You can control £30 of exposure for every £1 of margin – so £1,000 of margin could hold a £30,000 position on a major currency pair.
Can I lose more than my deposit in the UK? Not on a retail CFD or spread bet account with an FCA-authorised firm, thanks to negative balance protection. You can still lose everything in the account.
Why did my position close on its own? Probably because your account equity fell to the margin close-out level, or your stop was hit. Check your account history.
Disclaimer: This page is general education, not financial or investment advice or a personal recommendation, and it doesn’t take your circumstances into account. Examples are hypothetical, for illustration only, and not an invitation to buy or sell. Learning a strategy doesn’t guarantee profits. Past performance is not a reliable guide to future results. Futures, spread bets and CFDs are complex and carry a high risk of losing money quickly because of leverage, and most retail traders lose money. With a real futures account, losses can exceed your deposit. Only trade with money you can afford to lose, and speak to an independent FCA-authorised adviser if you’re unsure. Read our full risk warning.