Leverage
Using borrowed capital to increase the potential return of an investment. Amplifies both gains and losses.
Definition
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.
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
1
Regulated brokers have leverage limits (EU: 30:1 forex)
2
Start with lower leverage as a beginner
3
Higher leverage increases margin call risk
Related Terms
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