Two different numbers, one word
Permitted leverage is the broker's ceiling: 30:1 in the EU and UK for major pairs, 50:1 in the US, higher offshore. It is a limit, not a setting you are obliged to reach.
Effective leverage is what you have actually taken on:
effective leverage = total position value ÷ account equity
A $10,000 account holding one standard lot of EURUSD at 1.0850 carries $108,500 of exposure — roughly 10.9:1 — regardless of whether the account is set to 30:1 or 500:1. The permitted figure changed nothing about that position except how much cash sat idle as collateral.
Almost every discussion of "leverage" online is about the first number. Almost every account that fails does so because of the second.
The one number worth taking away
Effective leverage converts directly into the move that ends you:
move that wipes the account = 1 ÷ effective leverage
| Effective leverage | Adverse move that removes the account |
|---|---|
| 2 : 1 | 50% |
| 5 : 1 | 20% |
| 10 : 1 | 10% |
| 20 : 1 | 5% |
| 50 : 1 | 2% |
| 100 : 1 | 1% |
Now put that beside reality. A major currency pair routinely covers 0.5–1% in a session, and a central bank surprise can cover 2% in minutes. At 50:1 effective leverage, an ordinary Thursday is enough. This is why the calculator turns the figure red past roughly 20:1 — not as a moral judgement, but because below a 5% buffer the account is being decided by noise rather than by whether the trade idea was right.
Why it is the total that counts
Effective leverage is an account-level measure, and the mistake is computing it per position.
Five positions each at a comfortable 4:1 are 20:1 together — and if they are correlated, which currency positions usually are, they are effectively one large position wearing five names. EURUSD long, GBPUSD long and AUDUSD long is a single short-dollar bet in three costumes; they will move together on the day it matters, which is precisely the day the buffer is needed.
Sum the notional value of everything open before dividing. A per-trade risk rule of 1% does not protect an account carrying eight simultaneous versions of the same view.
What this does not replace
Effective leverage tells you what an adverse move does to the account. It says nothing about how likely that move is, or about where your stops sit. A position at 30:1 with a tight stop can be far safer than one at 5:1 with no stop at all.
Read it as the ceiling on damage rather than as the expected damage — and pair it with the stop, which is where the actual risk per trade is decided.