Leverage Calculator
Leverage is money that you borrow to invest. This calculator illustrates how leverage can amplify your investment gains and losses. Enter your figures below to see how changes in investment value will impact your net worth.
See How Leverage Affects Your Returns – Adjust the values to estimate gains and losses with leverage
Change In Net Worth
The change in personal net worth produced by the selected movement in the leveraged asset.€6,000
You gained €6,000 in net worth, representing a 60.00% return on your initial investment. A 20.00% price rise in the purchased asset was amplified by your borrowings, helping to increase returns.
- Asset Return (%)
- Net Worth Return (%)
- Asset Value After Move
- €36,000
- Net Worth Impact
- 60.00%
- Breakeven Asset Move
- -16.67%
How This Calculator Works
Your Inputs
| Input | What it means |
|---|---|
| Initial Investment (€) | How much of your own money you’ll be investing. |
| Leverage Ratio | The ratio between your initial investment and the purchase price of the asset you’re buying. At 10:1, every €1 you invest buys you €10 of the asset. The higher the ratio, the more money you’ll borrow to invest. Set this as ‘None’ if you wish to enter the borrowed amount yourself. |
| Borrowed Amount (€) | How much you’ll borrow to make the investment. This is the amount on top of your initial investment that makes up the full position. If you select a leverage ratio, it will be calculated automatically. You can enter a custom amount if you wish. |
| Asset Purchase Price (€) | This is the purchase price of the investment. It will equal your initial investment plus the amount you borrow. |
| Loss Protection | Loss protection indicates what happens when you start losing money. There are two options: Recourse and Close-Out.
|
| Liquidation Threshold | When you have Close-Out selected, this setting controls how much of your initial investment must remain before the lender closes the investment.
At 0%, you’d need to lose everything before the position is closed. At 25%, the lender will close the investment when you have a quarter of your initial investment left. |
| Gain/Loss on Asset (%) | The asset gain/(loss) slider lets you set the percentage change in the investment’s value. |
Key Insight:
If you’re trading contracts for difference (CFDs), the maximum leverage available to you is set by the European Securities and Markets Authority (ESMA). These rules apply across the EU and are not set by individual brokers. Other derivatives such as futures and options are regulated separately and carry different leverage limits.
Understanding Your Results
| Output | What it means |
|---|---|
| Asset Value | This is the current market value of the investment. |
| Change in Net Worth | How much your personal net worth has changed, both in euros and as a percentage of your initial investment. |
| Break-Even Return Required | How much the investment price needs to increase or decrease for you to break even. |
Key Insight:
A small percentage move in price can produce much larger percentage changes in personal net worth. That’s because you’re controlling a position that’s greater in size than your initial investment.
What is Leverage?
Leverage refers to money that has been borrowed to make an investment. This could be money borrowed to buy a home, invest in the global stock market, or trade complex derivatives.
Why is Leverage Used?
Leverage lets you control an asset whose value is larger than the amount of money you currently have. You put in a percentage of the total cost and the rest is borrowed. There are both benefits and risks to using leverage:
Benefits
- Lets you benefit from price increases on an asset you couldn’t buy outright.
- Spread your money across multiple investments rather than committing it all to one.
Risks
- Losses can be uncapped and result in debt.
- Borrowed money carries a cost (i.e. interest) irrespective of asset performance.
Leveraged ETFs
Leverage can also be built into investment products themselves. For example, certain exchange-traded funds (ETFs) are leveraged, meaning they are designed to deliver a multiple of the daily return of an index. These are complex products that carry significantly higher risk than a standard ETF and are not suitable for most investors, but a beginner investor could wander into one by mistake.
Compare ETFs
Compare ETFs: Our ETF comparison tool compares over 170+ funds, hand-picked by our experts with Irish investors in mind. Check it out for yourself.
Leverage Ratio
The ratio between your own money and the total value of the asset is known as the leverage ratio. For example, when purchasing shares using a margin account, this ratio compares your cash deposit to the total market value of the shares you control. A margin account is a brokerage account that allows you to borrow money to invest.
Small cash deposits relative to larger borrowings will result in a higher leverage ratio, meaning you’re controlling a significantly larger investment position than you otherwise could afford using your cash alone.
Example:
An investment of €10,000 at a 10:1 leverage ratio results in a €100,000 position. The investor is borrowing €90,000. A 5% gain on the asset returns €5,000 to the investor, a 50% return on their investment. However, a 5% drop would wipe out the same amount, a 50% loss on the investment, despite a minor decline in the asset price. This highlights the risks of trading with borrowed funds.
Leverage vs. Margin
Margin is the cash and securities you must hold in your account as security against your borrowings. It’s what determines the amount of cash you can borrow, which is the leverage. The less margin required, the higher the leverage ratio will be.
A margin call is where an investing platform demands that an investor who has borrowed money to deposit more money to bring their balance up to a minimum required value. This will happen when losses reduce the balance to a point where there isn’t enough value left to cover your debt.
The level at which a margin call is triggered varies by broker. For CFDs, ESMA requires brokers to automatically close positions when your account falls to 50% of the margin needed to keep the trade open. Many brokers will warn you before that point is reached.
Mortgages work differently. There is no margin call on a mortgage because the loan is secured against the property itself rather than a cash and securities balance in an account.
If you receive a margin call, you have three main options:
- 1
Deposit More Funds: Adding money to your account brings it back above the required margin level and keeps your trade open.
- 2
Reduce Your Position Size: Closing part of your trade reduces the margin needed to keep it open, which can bring your account back above the threshold without adding new funds.
- 3
Do Nothing: If you take no action, the broker will step in. Under close-out leverage, positions are closed automatically when your account hits the liquidation threshold, capping your loss at what you put in. Under recourse leverage, the broker can still close your position but you may owe more than your original contribution.
Key Insight:
Leverage and margin apply to homebuyers too. A €30,000 deposit on a €300,000 house means you’re controlling ten times what you put in using a €270,000 loan. The deposit is your margin, and the bank holds the house as collateral against any money that you owe.
Example of a Leverage Calculation
Say you invest €40,000 at 10:1 leverage. Your borrowed amount is €360,000, making your total position €400,000. The asset drops 20%:
20% × €400,000 = €80,000 loss
With recourse, the €360,000 borrowed still has to be repaid regardless of what the asset does. That €80,000 loss falls entirely on you, leaving you €40,000 in debt after your initial investment has been wiped out.
With close-out, the broker would have closed the position before the loss exceeded €40,000, restricting your loss to your original investment.
The Risks of Trading with Leverage
Losses Happen Fast
Leveraged losses happen fast. A relatively small drop in the asset price can wipe out your investment before you have time to react. The more you borrow, the less the price needs to move for that to happen.
Asset Volatility
Applying high leverage to an asset that swings sharply in price leaves very little room for the market to move against you. At high leverage, this can wipe out more than your entire contribution before the market has even closed.
Overnight Financing Charges
When you hold a leveraged trade open past the end of the trading day, the broker charges you a daily fee. This is called an overnight financing charge. Closing your position before the end of the trading day avoids this cost entirely.
Cross Leverage
This means your open positions are used as collateral against each other. If one position moves sharply against you, it can trigger forced closures across your other positions at the same time, including ones that are performing well.
Can you lose more than you invest?
With Close-out Leverage, your loss is capped at your original contribution. When your losses reach a set threshold, the broker closes the position automatically and you cannot lose more than you put in.
Under Recourse Leverage there is no such cap. If the asset falls far enough, you can end up owing more than you put in. This is how mortgages work. If a property falls in value below the outstanding loan balance, the borrower still owes the full amount to the bank.
Regulation and Consumer Protections
In Ireland, leveraged trading products such as CFDs, spread bets and other derivatives are regulated by the Central Bank of Ireland. Any broker offering these products to Irish retail customers must be authorised either by the Central Bank of Ireland or by a regulatory body in another EU member state.
ESMA’s own data shows that between 74% and 89% of retail CFD accounts across the EU lose money. This led ESMA to introduce leverage limits across the EU for retail clients.
Every regulated CFD broker is required to publish the percentage of their retail accounts that lost money over the previous 12 months. You will see this figure displayed on any regulated broker’s website or platform.
These limits apply to CFDs only. Other derivative products such as futures and options are not covered by the same rules. They are regulated under MiFID II but their margin requirements are set by the exchange.
The table below shows the maximum leverage ESMA permits brokers in the EU to offer retail clients on CFDs.
| Asset Class | Maximum Leverage |
|---|---|
| Major Currency Pairs | 30:1 |
| Non-Major Currency Pairs, Gold and Major Indices | 20:1 |
| Commodities excluding Gold and Non-Major Indices | 10:1 |
| Individual Shares | 5:1 |
| Cryptocurrencies | 2:1 |
Note:
These limits apply regardless of which regulated broker you use. Professional clients can apply for higher limits but lose negative balance protection in doing so.
What This Calculator Does Not Include
Overnight Financing Charges: Holding a leveraged position open past the end of the trading day incurs a daily borrowing cost based on the borrowed amount. These charges are not reflected in the results.
The Spread: When you buy an asset through a broker, the price you pay is slightly higher than the market price. When you sell, the price you receive is slightly lower. That gap between the two is called the spread. It’s not accounted for in this calculator.
Slippage: In fast-moving markets, the price at which your trade actually goes through can be worse than the price you saw when you placed it. This tends to happen around major news events when prices move so quickly that the broker cannot fill your order at the price you expected.
Commission: Some brokers charge a per-trade commission on top of the spread, particularly on share CFDs. This is not included in the figures shown.
- This calculator models a single price movement on a single position. It does not account for multiple open positions or forced closures triggered by margin calls across a portfolio.
Frequently Asked Questions
Margin is the security deposit of cash and securities that a broker requires you to contribute to borrow to invest. Leverage is the money that you borrow.
There is no universally safe level. Lower leverage gives the asset more room to move against you before losses become serious. Higher leverage means smaller price movements have a bigger impact on your money. What’s appropriate depends on your risk tolerance, how volatile the asset is, and how well you understand what you stand to lose.
Negative balance protection means your broker cannot pursue you for losses beyond your initial contribution to a trade. Under ESMA rules, which apply in Ireland through the Central Bank, retail clients trading CFDs are entitled to this protection. You can lose your initial investment, but you cannot end up owing money to the broker.
Regulated brokers operating in Ireland are bound by ESMA rules that cap leverage depending on the asset class. These limits were introduced after data showed the vast majority of retail clients trading high-leverage products were losing money. The caps are a consumer protection measure, not a commercial decision made by individual brokers.
When people talk about leverage, they’ll often say that an investment is “leveraged” or that an investor is “levered”. Both mean the same thing.
