learn/glossary/leverage

Leverage

Basics
Leverage is the ratio that lets you control a position larger than your own capital, expressed like 1:100, meaning every dollar of your margin controls a hundred dollars of position.
Key facts
Written asA ratio, e.g. 1:100
ControlsMargin required, not your risk
DangerUsing the headroom to over-size
RelatedMargin, position sizing

What leverage actually changes

Leverage does not set your risk, your position size and stop do that. What it changes is how much margin your broker locks up to open a trade, and how large a position you are able to open at all. A higher ratio means less margin per trade and more room to take on size, which is useful and dangerous in equal measure.

The leverage that matters

The ratio your broker allows is a permission, not a measurement. What actually describes your risk is effective leverage: the total position value you are carrying divided by your account equity. A trader allowed 1:100 who only ever runs 3:1 is being conservative, and one running 30:1 is exposed no matter what the broker permits.

Related terms
MarginPosition sizingPip

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Leverage - Trading Glossary | TradeDNA