📈 What is Leverage?

Leverage is a financial mechanism that allows you to control large positions with little capital, multiplying both profits and losses. It is a powerful yet double-edged tool, widely used in markets such as stocks, forex, cryptocurrencies, and derivatives.

👉 In simple terms: It’s like a “loan” your broker gives you to trade with more money than you actually have.

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📌 Key Features of Leverage

✅ Multiplies exposure: You control positions 10x, 50x, or even 100x+ your capital
✅ Amplifies results: Both profits and losses are multiplied
✅ Requires margin: You must maintain a minimum deposit (collateral)
✅ Varies by market: Forex offers higher leverage than stocks

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🔄 How Does Leverage Work?

Basic formula:

Total position = Own capital × Leverage level

Example with 1:100:

• Capital: $1,000
• Controlled position: $100,000

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📊 Common Leverage Levels

Market	Typical Leverage	Example with $1,000
Wholesale Forex	1:500	Control $500,000
Retail Forex	1:30 (EU) to 1:400	$30,000 to $400,000
Cryptocurrencies	1:2 to 1:100	$2,000 to $100,000
Stock CFDs	1:5 to 1:20	$5,000 to $20,000

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⚖️ Advantages vs. Risks

✅ Advantages:

✔ Opportunity for higher profits with little capital
✔ Access to expensive markets (e.g., forex)
✔ Efficient use of capital

⚠️ Risks:

✔ Losses can exceed your deposit (margin call)
✔ Increases emotional volatility
✔ Requires strict risk management

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📉 Practical Example

Scenario:

• Capital: $1,000
• Leverage: 1:50
• Trade: Buy EUR/USD
• Movement: +1%

Results:

• Without leverage: +$10
• With 1:50: +$500 (50x more)
• If the move is against you: -1% = -$500

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🔍 How to Calculate the Right Leverage?

1. Determine your risk tolerance (e.g., no more than 2% per trade)
2. Consider the asset’s volatility
3. Use mandatory stop-loss orders

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💡 Tips

🔹 Beginners: Start with low leverage (1:10 or less)
🔹 Always use stop-loss orders
🔹 Avoid maximum leverage even if available
🔹 Consider the required margin before trading

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🎯 Conclusion

Leverage is like a turbo engine for your trading: used well, it can boost your results, but mismanaged, it can destroy your account. The key lies in using it with discipline, risk management, and knowledge.

You may also be interested in: 👉 Margin Call and 👉 Risk Management.