Definition

Leverage is the use of borrowed funds to increase trading exposure beyond the amount of capital available in an account. It allows traders to control larger positions with a smaller initial margin.

While leverage can amplify gains, it also increases potential losses and may lead to liquidation if market movements exceed risk thresholds.

Example in Context

A trader using 10x leverage with $1,000 in margin can open a position worth $10,000. Small price movements may significantly impact account equity.

FAQs

Does leverage increase risk?

Yes. Leverage amplifies both gains and losses.

What is 10x leverage?

10x leverage means a trader controls a position ten times larger than their initial margin.

Is leverage appropriate for beginners?

Leverage introduces additional risk and may not be suitable for all traders.

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