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Risk & money management

Leverage

Leverage is the use of borrowed funds to control a position larger than the capital you put up, magnifying both gains and losses relative to your account.

Also called: Trading on leverage · Gearing

Leverage lets a trader open a position worth more than the money in the account, with the broker or exchange lending the difference. It is common in forex, CFDs, futures and crypto perpetuals. Leverage makes small price moves matter much more, in both directions, which is why it is closely tied to margin and the risk of a margin call.

How it works

Leverage = position value ÷ margin (your own capital committed)

The margin requirement and the maximum leverage are two views of the same thing: 1% margin = 100:1, 2% = 50:1, 5% = 20:1, 10% = 10:1. Available leverage depends on the broker, the instrument and local regulation.

What matters for risk is effective leverage: total position value divided by total account equity. Two traders can use the same maximum leverage and carry very different real exposure.

Example

You have $2,000 and open a EUR/USD position worth $20,000 (about 0.18 lot at 1.1000), so effective leverage is 10:1.

  • If EUR/USD rises 1%, the position gains about $200, or +10% of the account.
  • If it falls 1%, it loses about $200, or −10%.
  • A 5% adverse move would cost about $1,000, half the account.

Without leverage, the same 1% move would change the account by 1%. The stop distance and the position size, not the leverage ratio on offer, should decide how much is at stake.

Common mistakes

  • Sizing by available leverage. “100:1 is allowed” is not a reason to use it. Size from the stop and a fixed risk per trade; the position size calculator does this.
  • Forgetting the cost of carry. Leveraged positions often pay overnight financing or, in crypto perpetuals, a funding rate.
  • No stop-loss. With leverage, an unprotected position can lose the whole margin quickly; a stop-loss defines the loss in advance.
  • Underestimating volatility. Assets with a high ATR need far less leverage for the same risk.
  • Averaging down. Adding to a losing leveraged position deepens drawdown and brings liquidation closer.

In SnapPulse

SnapPulse sizes positions on the device from your balance, your chosen risk percentage and the stop distance, so the amount at risk does not depend on how much leverage your broker offers. Download SnapPulse.

Educational content — not financial advice.

Updated

Frequently asked questions

What does 10x leverage mean?

It means you control a position worth ten times the margin you put up. A 1% move in price changes your margin by about 10%.

Does leverage increase risk?

Leverage itself only changes how much capital you tie up. Risk grows when you use it to take a larger position, because each price move then has a bigger effect on your account.

What is the difference between leverage and margin?

Margin is the collateral you deposit; leverage is the ratio between the position size and that collateral. A 2% margin requirement corresponds to 50:1 leverage.