Leverage and Margin in Commodities: What a 5% Move Does to Your Account

Leverage lets you control a large commodity position with a small deposit called margin, so a small price move becomes a large gain or loss on your account. At 20:1 leverage, a 5% move against you wipes out 100% of the margin; at 100:1, a 1% move does the same. The safe way to think about leverage is not "how much can I control?" but "how much money do I lose if price hits my stop?"

Leverage in one formula

Leverage is the size of your position compared with the money behind it. There are two versions, and beginners often mix them up:

• Margin leverage = position value / margin required. This is what the broker advertises (for example 20:1 means 5% margin).
• Effective leverage = total position value / your account equity. This is what actually decides how much a price move hurts you.

What a 5% move does

The loss or gain on your account is roughly effective leverage x price move:

Effective leverage	5% move against you	5% move in your favour
1:1	-5%	+5%
2:1	-10%	+10%
5:1	-25%	+25%
10:1	-50%	+50%
20:1	-100% (account gone)	+100%
50:1	Account gone after a 2% move
100:1	Account gone after a 1% move

Five percent is not an extreme move in commodities. Natural gas often moves that much in a day. Gold fell about 9% in a single day in April 2013, and WTI crude fell roughly a quarter on 9 March 2020 after OPEC+ talks broke down. A strategy that only survives "normal" days will eventually meet an abnormal one.

Futures margin and CFD margin

Futures margin is set by the exchange and can be raised by your broker. It is a performance bond, not a down payment, and exchanges increase it when markets become volatile, sometimes at the worst possible moment for traders already in a position. The mechanics of initial margin, maintenance margin and daily settlement are covered in the lesson on futures margin and mark-to-market.

CFD margin is set by the broker as a percentage of the position value. In the EU and UK, retail leverage on commodity CFDs is capped at 20:1 for gold (5% margin) and 10:1 for other commodities (10% margin). Brokers outside those rules may offer 100:1, 200:1 or more. High available leverage is not a feature; it is an invitation to oversize.

Margin calls and stop-outs

When losses reduce your equity below the required margin, a futures broker issues a margin call (add money or the position is closed) and a CFD broker may automatically close positions at its stop-out level. Forced closes happen at the worst moment, often after a sharp move that may reverse.

Prices can also gap: open far from the previous close after a weekend or a major news event. A stop order turns into a market order when touched, so it fills at the next available price, which may be well beyond your stop. With futures you can lose more than your deposit and owe the broker the difference. Retail CFD clients in the EU and UK have negative balance protection, but many brokers elsewhere do not offer it.

Leverage costs money

Borrowed exposure is not free:

• CFDs charge overnight financing on the full position value, usually a benchmark interest rate plus the broker's markup.
• Futures build financing into the futures price, and you also pay commissions and the cost of rolling contracts before expiry.

Use risk per trade, not leverage, as your control

Professional traders usually start from a fixed risk per trade, often between 0.25% and 1% of equity, and work backwards:

1. Decide where the stop goes (for example based on volatility, as taught in the ATR lesson).
2. Work out the loss per unit if the stop is hit.
3. Position size = money at risk / loss per unit.

This approach means a losing trade costs about the same small slice of your account in gold, oil or natural gas, which is the foundation of the position sizing lesson later in the course.