Leverage
Using borrowed capital to increase the potential return of an investment. Amplifies both gains and losses.
Leverage is borrowed buying power. At 30:1, $1,000 controls $30,000 of position. It multiplies profit and loss in both directions, which is why regulators cap retail leverage.
Leverage allows traders to control a larger position with a smaller amount of capital. For example, 100:1 leverage means $1,000 controls $100,000 in the market. While leverage amplifies profits, it equally amplifies losses. The trade-off is direct: leverage does not create profit, it scales whatever happens to your position. A 1% move against you at 30:1 is a 30% loss on your deposit, which is why the highest leverage offers come from the least regulated brokers.
How It Works
- 100:1 leverage: $1,000 margin controls $100,000
- 50:1 leverage: $2,000 margin controls $100,000
- Higher leverage = higher risk and reward
- Margin is the collateral required
Types of Leverage
Forex Leverage
Often 30:1 to 500:1 depending on regulation
CFD Leverage
Varies by instrument (stocks, indices, commodities)
Crypto Leverage
Typically 2:1 to 100:1
Trading Tips
Regulated brokers have leverage limits (EU: 30:1 forex)
Start with lower leverage as a beginner
Higher leverage increases margin call risk
Related Terms
Sources
- ESMAEU retail leverage limits (30:1 major FX)
- FCAUK leverage and client-money rules
- InvestopediaDefinition and worked example
Put Your Knowledge Into Practice
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