What is a leverage?

Leverage, otherwise known as risk level, is a temporary loan given to the trader by the broker. It enables you, as the trader, to open a trade of a larger size with a smaller amount of invested capital. Leverage is presented in the form of a multiplier that shows how much more than the invested amount a position is worth.

The best way to understand leverage is through an example of how it affects your profit or loss potential. If you trade with no leverage at all and invest $1,000, for every 1% move in the market you can gain or lose $10, which equals 1% of $1,000.

In comparison, if you were to invest the same $1,000 and trade using x10 leverage, the dollar value of your position would be equal to $10,000.

1% of $10,000 equals $100, so for every 1% move in the market you can gain or lose $100.

When opening a trade, you can decide if you wish to use leverage or not. Different instruments have different maximum leverage amounts, in accordance with applicable law.

Please note that the use of leverage carries with it a higher degree of risk because leverage augments both gains and losses. If you use leverage on a trade and the market moves against you, your loss per pip will be greater than if leverage had not been applied.