What is leverage in trading?

Leverage means controlling a position larger than the money you put in. It is the single mechanic behind most of the risk warnings on trading platforms, and it works with complete symmetry: it scales losses exactly as it scales gains.

The basic arithmetic

Purely hypothetical numbers: with 1:10 leverage, a deposit of 100 controls a position of 1,000. If the position's value rises 1%, that gain of 10 is a 10% return on your deposit. If it falls 1%, the loss of 10 is likewise 10% of your deposit. At 1:30, the same 1% move becomes 30% of your deposit; at 1:100, it becomes 100% — a 1% move against you can consume the entire deposit. Nothing about the mechanism prefers the upward direction.

Margin, and why positions get closed

The deposit backing a leveraged position is called margin. As a position loses, the margin supporting it shrinks; platforms set a level at which they close the position automatically rather than let losses exceed what the account holds. This closure — often called a margin call or stop-out — is a mechanical consequence of the arithmetic above, and it can happen at speed in a fast market.

Why regulators cap it for retail accounts

Different regulators impose different maximum leverage on retail products, which is why the same platform may advertise several different figures across its entities and account types. The cap is a constraint on the arithmetic: at lower leverage the same market move consumes less of a deposit, leaving more room before forced closure.

Financing: leverage is borrowed money

The amount above your deposit is effectively borrowed, and borrowing has a cost. Leveraged positions held across days typically accrue holding charges, so time works against a leveraged position even when the market stands still. Our guide to broker fee structures walks that cost family in detail.

The sentence worth keeping

Leverage does not change what a market does; it changes how much of it your deposit experiences. Every figure a platform advertises — 1:20, 1:30, 1:500 — is an answer to one question: how large is the multiplier between the market's move and yours?