What is Leverage? - Definition & Explanation

Definition

The use of borrowed capital to increase the size of a trading position.

Leverage Explained

Leverage allows traders to control a larger position with smaller capital. Expressed as a ratio (1:100, 1:500). With 1:100, a $1,000 deposit controls $100,000

Magnifies both profits and losses. Regulatory limits vary by region.

Related Terms

Broker

A company that provides access to the forex market for retail traders.

CFD (Contract for Difference)

A derivative product that lets traders speculate on price movements without owning the underlying asset.

Leverage - Frequently Asked Questions

Beginners should use low leverage - 1:10 to 1:30 maximum to limit risk while learning.

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