What's the relation between free margin and drawdown? (and leverage)

External question — Personal Finance Stack Exchange Author: Gerard Bosch Original post: https://money.stackexchange.com/questions/154837 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I'm trying to understand whether different leverages can affect the drawdown in forex/CFD trading. I have noticed that given the same lot size, the bigger the account leverage, then the bigger is the free margin when you open a position. Is this correct? Assuming the above is correct, will a higher free-margin result in lower drawdown when a position goes against you? To put it in other words: Should I use the highest leverage the broker offers to keep drawdown as low as possible? * I'm assuming the same lot size is used. Only want to spot the differences/relation between leverage , free-margin and drawdown when a position goes against you. Thanks!

External answer — Personal Finance Stack Exchange Author: S Spring Original post: https://money.stackexchange.com/a/154845 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. The amount of leverage that is used is the correct fundamental. Add the free margin to the required margin and divide by the position size. Then take the reciprocal to get the x-times of leverage. If account-one has $4000 with $2000 required to hold a $100000 position then the overall leverage is $4000 / $100000 with the reciprocal determining 25 times leverage. If account-two has $4000 with $1000 required to hold a $100000 position then the overall leverage is the same as account-one .