Risk
Leverage
Borrowed exposure that lets a small deposit control a large position.
Leverage allows a trader to control a position far larger than the cash they put up, expressed as a ratio such as 30:1. At that ratio, a 1,000 unit deposit controls a 30,000 unit position.
Leverage magnifies losses exactly as much as gains, which is the primary reason most retail traders lose money. Regulators in the UK, EU and Australia cap retail leverage on majors for this reason. It should be treated as borrowed risk, and used well below the maximum offered.
Taught in these lessons
- What is a pip? — Forex Foundations
- Lots & leverage — Forex Foundations
- How to choose a broker — Forex Foundations
- Margin calls & stop-outs — Risk & Position Sizing
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