Leverage can multiply your gains and your losses. Learn how leverage and margin work and how to use them responsibly.
Understanding Leverage
Leverage lets you control a large position with a relatively small deposit. A leverage of 1:30 means you can control $30,000 with just $1,000.
What Is Margin?
Margin is the deposit required to open and maintain a leveraged trade. It is essentially a good-faith security amount held by your broker.
The Double-Edged Sword
Leverage magnifies profits, but it magnifies losses just as much. High leverage is one of the fastest ways new traders lose their capital.
Margin Calls
If your losses reduce your account below the required margin, the broker may issue a margin call or automatically close positions to prevent further loss.
Using Leverage Responsibly
- Start with low leverage
- Always use a stop-loss
- Never risk more than a small percentage of your account on a single trade
- Remember that regulated brokers often cap leverage to protect retail traders