Leverage
Leverage lets you control a much larger position than the cash you’ve actually put up, and it’s one of the main reasons retail traders can get anywhere near markets like GER40 or gold at all, but it magnifies losses exactly as readily as it magnifies gains.
How it works
The margin you put up (red) is a small fraction of the full position size you control (teal outline).
At 1:100 leverage, £100 of margin controls a £10,000 position, so a 1% move in your favour on the full position size hands back a 100% return on the margin you committed. The reverse holds just as tightly: a 1% move against you wipes out that same £100 completely, which is the whole point to understand here, leverage doesn’t change the underlying market at all, it only changes how much of your own capital is standing in front of a given move.
Margin and stop-outs
Margin is the money set aside as collateral for a leveraged position, and if a trade moves against you enough that your account’s equity falls close to what’s required to keep it open, the broker will issue a margin call or automatically close the position in a stop-out. That’s a mechanical process, not a punishment, and it exists so a losing account can’t slide into a negative balance the broker would otherwise have to cover.
Why more leverage isn’t automatically better
Higher leverage doesn’t sharpen your edge or lift your win rate, it only changes how hard a given price move hits your account, so reaching for the maximum leverage available just means smaller adverse moves can do proportionally more damage. Most experienced traders use meaningfully less leverage than the maximum a broker offers, specifically so ordinary volatility doesn’t force a stop-out before their actual trading plan has a chance to play out.
Key takeaways
- Leverage lets a small amount of margin control a much larger position, magnifying both gains and losses equally
- Margin is the collateral held against a leveraged position; a margin call or stop-out happens automatically if a losing trade erodes it too far
- Leverage doesn’t improve your edge or win rate, it only scales how much a given move affects your account
- Using less than the maximum available leverage is common practice, precisely so ordinary volatility doesn’t force you out of a position early
Nothing on this page is financial advice. Trade your own account, manage your own risk.
Nothing on this page is financial advice. Trade your own account, manage your own risk.