leverage
Trading a position larger than your own money by borrowing the rest, which multiplies gains and losses on the account alike.
Leverage lets a trader control a position larger than the cash put up, typically by borrowing or using a product that magnifies exposure. It magnifies losses and gains on the account alike.
The relevant risk is the change in the whole position, not just the cash deposited. A small move against a large leveraged position can use up account funds quickly, and some products can create losses beyond the initial amount.
Leverage does not make an idea more reliable. Costs and forced close-outs can also affect results.
Example
Marc has a $1,000 practice account and uses 2:1 leverage to control a made-up Spark Coin position worth $2,000. If Spark Coin falls 10%, the position loses $2,000 × 0.10 = $200 before costs. That is 20% of the account: $200 ÷ $1,000 = 0.20.
Without leverage, a $1,000 position falling 10% would lose $100. Leverage doubled the account impact in this illustration; it did not make the price move more predictable.
Common mistakes
- Looking only at the deposit instead of the full position exposure.
- Treating leverage as a way to improve the odds of a trade.
- Forgetting that losses can trigger a forced close or exceed the initial amount.
- Most people who trade lose money.
Learn it in the course
- Exchange, broker, instruments: a map · A plain map of where trades happen and what you can trade: shares, funds, currencies, futures and coins, plus what going short and leverage mean, with the warnings.
- Where the money goes: spread, fees and slippage · Every trade starts a little in the red. See the costs that eat small gains and why many tiny trades lose.
- Case: decide whether and how to start · Write your own memo: money you can afford to lose, your plan, your limits and the day you would stop, or your reasons not to start at all.
- Case: three promises that sound too good · Judge three ads that promise easy money by what you can check, not by what they promise; find the hidden losses, the guarantee, the pressure and the request for access.