Leverage

Leverage is a tool that lets you control a larger position in the market with a smaller amount of your own capital. With 1:100 leverage, your $1,000 controls a $100,000 position. The broker essentially lends you the difference, using your deposit (margin) as collateral. This amplification applies equally to profits and losses.

Different regulators impose different leverage limits. In the EU and Australia, retail traders are capped at 1:30 for major forex pairs and even lower for other instruments. Offshore brokers may offer 1:500 or 1:1000. Higher leverage isn't inherently better — it just means you can take bigger positions, which increases both potential profit and potential ruin.

Leverage is the primary reason most retail traders lose money. A 1% adverse move on a 1:100 leveraged position wipes out your entire margin. New traders often use maximum leverage because it feels exciting, only to discover that their account can't survive normal market fluctuations. Professional traders typically use effective leverage far below their maximum allowance.