Leverage
The use of borrowed capital from a broker to increase the potential return of a trade.
Plain-English Meaning
Leverage is a tool that lets you control a large amount of money using a much smaller amount of your own money. It acts as a multiplier for both your profits and your losses.
Why It Matters
Leverage allows retail traders with smaller accounts to participate in markets that typically require large capital. However, it significantly amplifies risk.
Simple Example
With 1:100 leverage, you can control a $10,000 position with only $100 of your own money.
This educational example uses selected assumptions for reference calculation purposes. Real conditions may vary by broker, exchange, or instrument.
Beginner Mistake
Using maximum leverage on every trade, which can lead to rapid account depletion from even minor market movements.
Note: Leverage is a double-edged sword. While it can increase potential gains, it equally magnifies potential losses. Broker settings may vary.