Leverage
Using borrowed capital to control a position larger than your account balance.
Also called: leveraged · gearing · 10x
Written by Javier Sánchez Ros
In plain language
Leverage is expressed as a multiple. At 10x, $1,000 of your own capital controls a $10,000 position. Every price move is amplified by that same factor against your equity.
Leverage does not change the percentage move of the asset. It changes what that move does to you. A 2% adverse move on a 10x position removes 20% of your capital.
Crucially, leverage does not have to increase risk. Leverage sets how large a position you can hold; your stop distance and position size set how much you can lose. Used deliberately, leverage lets a small account hold a properly sized position it could not otherwise fund.
The formula
Position Value
Account Capital × Leverage
- Effective leverage
- Position Value ÷ Account Equity
- Loss on equity
- Price move % × Leverage
Worked through
A $2,000 account controlling $20,000 of exposure
- Leverage
- 10x
- A 1% move is worth
- $200
- As a share of the account
- 10%
- Move that erases the account
- 10%
Leverage does not change what the market does. A 1% move is a 1% move. What it changes is what that move means to you: at 10x, an ordinary day in the instrument is a tenth of the account, and a 10% move — which most things do a few times a year — is all of it.
Whether this is dangerous depends on one thing, and it is not the leverage number. It is whether a stop is attached. A trader with 10x and a stop 1% away is risking $200. A trader with 2x and no stop is risking everything, slowly. The leverage ratio describes the position; the stop describes the risk.
Used deliberately, leverage is what lets a small account size a trade properly rather than being forced into a position too large or too small for its stop. Used as a setting to be maximised, it is the fastest route to having the broker close the trade for you.
The thing it never does is improve the idea. A leveraged wrong opinion is just a wrong opinion that arrives at its conclusion sooner.
Change the numbers
This is the concept as a working tool. Edit any field and watch what moves — that relationship is the thing worth remembering.
- Position Value
- $10,000
- Effect On Your Equity
- -20%
- Move To Liquidation
- 10%
If price moves 2% against you
Before fees and maintenance margin
Leverage does not change the asset's move — it changes what that move does to you. At 10x, roughly a 10% move against the position wipes out the margin behind it.
Size a leveraged position with a real stopSeen on a chart
Why it matters
Leverage is the fastest route to a margin call, and also the tool that makes correct position sizing possible on a small account. Which one it is depends entirely on whether a stop is attached.
Common mistakes
- Treating available leverage as a target rather than a ceiling.
- Sizing to maximum leverage and leaving no margin buffer for normal fluctuation.
- Forgetting that leverage magnifies the loss but never the accuracy of the idea.
Put it to work
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
The capital your broker requires you to post to open and hold a leveraged position.
A broker demand for more capital when account equity falls below the required minimum.
The amount of an asset you buy or sell in a single trade.
The total market value of a position — size multiplied by price.
The price at which a leveraged position is forcibly closed because margin is exhausted.