To make the following example easier to understand, a simple ratio of 1:1 will be used for the leverage on the trader’s account. 

Say that a trader is planning on buying €1,000 against the USD, with an account of $10,000. 

The EURUSD rate is 1.4314, meaning that each Euro equals 1.4314 US dollars. So, to buy €1,000 the trader must pay $1,431.40 because of the exchange rate.

 If the trader were to close his or her EURUSD position, the $1,431.40 would be released back into their account balance. 

But what if the trader’s account is leveraged, with a 100:1 leverage. 

Then, to buy €1,000 against USD, the trader would have to pay 1/100 of the money that he or she had to pay when the account was not leveraged. 

This means that in order to make the trade and buy €1,000 against USD, the trader would pay only $14.31, a significant decrease in expense. The margin level is the ratio of equity to margin: margin level = (Equity/Margin) X 100. 

It is very important, used by brokers to determine whether traders are able to take new positions or not. 

There are many different limits for margin level, but most brokers use a 100% limit, or “margin call level.” 

If a trader’s account margin call level is reached, he or she can close any open positions, but would be unable to take any new positions.

 This happens when a trader has a losing position, or when the positions of the market keep going against the trader.