What is Leverage?
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.
Frequently Asked Questions (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.