What Is Leverage? Meaning & Example
Definition
Leverage means using borrowed money or derivatives to control a larger position than your own capital alone allows. It magnifies both gains and losses.
Related terms
Margin is money borrowed from a broker to buy investments, or the collateral required to hold a leveraged position. Trading on margin increases risk and involves interest costs.
Margin CallA margin call is a demand from your broker to add funds or reduce positions when your account equity falls below required levels. If you do not act, the broker may sell your holdings.
LotA lot is a standardized trade size in forex. A standard lot is 100,000 units of the base currency, with mini lots at 10,000 and micro lots at 1,000.
What is Leverage?
Leverage means using borrowed money or derivatives to control a larger position than your own capital alone allows. It magnifies both gains and losses.
Can you give an example of Leverage?
With 10x leverage, a $1,000 deposit controls a $10,000 position, so a 5% drop costs $500, half your deposit.