What Is Leverage?
Leverage allows traders to control a larger market position using a smaller amount of capital.
For example, 30:1 leverage theoretically means that £1 of available capital can provide exposure equivalent to £30, subject to the provider’s rules and margin requirements.
Why Does Leverage Exist?
Without leverage, many traders would need significantly more capital to obtain certain levels of market exposure.
Leverage can therefore make capital more efficient.
But leverage is not free money.
The Dangerous Misunderstanding
Some beginners think:
“100:1 leverage means I can make 100 times more money.”
That’s not how it works.
Your profit and loss are determined by the size and movement of your position.
Higher leverage can allow you to open larger positions relative to your capital, which can also mean losses happen faster if you over-size your trades.
Key Takeaways
- Leverage increases market exposure relative to capital.
- Leverage doesn’t create a trading edge.
- Excessive position sizing is dangerous.
- Risk management remains essential.
Disclaimer
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
