Leverage

In practice

With 1:100 leverage, $500 of margin controls a $50,000 position. A 1% move in the asset's price — $500 — has now doubled or wiped out your deposit. The same account at 1:10 leverage would only control $5,000, so that 1% move shifts your margin by just $50.

Why it matters for traders

Leverage is a magnifier, not free money: it scales your profits and your losses equally. Most beginners lose not because they pick the wrong direction but because they size the position as if leverage were a gift. Treat leverage as a tool that lets you hold a correctly-sized position with less capital, not as a reason to hold a bigger one.

Common pitfall

The classic error is using max leverage to open the largest position the broker allows, treating available leverage as a recommendation. Leverage only sets the minimum margin; it says nothing about correct risk. A 1:500 account can still risk 1% with a 20-pip stop on a tiny lot. Choose your lot from your stop distance and risk percentage first, then notice the margin is small — never work the other way around.

Putting it in context

Cost and leverage terms like this one matter more to your long-term results than most entries or indicators ever will. Two traders taking identical trades can end the year with very different accounts purely because of spread, swap, commission, and position size. The habit to build is computing the full cost of a trade before entering it — not just the stop-loss distance, but every charge the broker applies between open and close. On a demo account these costs feel invisible; on a live account, over hundreds of trades, they decide whether an otherwise sound strategy is profitable. Revisit your broker's actual charges every few months, because advertised headline figures rarely reflect what an average retail trade really pays.

Lessons that use this term

• Leverage and margin

  How borrowed size works, what margin locks up, and why over-leverage kills accounts.

Related terms