Basics
Leverage
Using borrowed capital to increase potential returns.
Full Definition
Leverage in trading allows you to control a larger position with a smaller amount of capital. It's expressed as a ratio (e.g., 10:1, 50:1, 100:1). While leverage amplifies potential profits, it equally amplifies potential losses. This makes it a double-edged sword that requires careful risk management. Different brokers and jurisdictions offer varying maximum leverage levels.
Example
With 100:1 leverage and $1,000 in your account, you can control a $100,000 position. If the trade moves 1% in your favor, you gain $1,000 (100% return). But if it moves 1% against you, you lose $1,000 (your entire account).
Formula
Leverage Ratio = Total Position Size ÷ Required MarginRelated Terms
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