Leverage allows traders to open positions larger than their actual account balance by using borrowed funds provided by the broker.
It is expressed as a ratio, such as 1:100 or 1:200.
How does leverage work?
Leverage reduces the amount of margin required to open a trade.
For example:
With 1:100 leverage, you need $1,000 in margin to control a $100,000 position
With 1:200 leverage, the same position would require $500 in margin
Higher leverage means less margin is required, but it does not change the market movement of the instrument.
Important to know
Leverage magnifies both profits and losses
Higher leverage increases exposure and risk
Margin requirements and maximum leverage depend on:
Account type
Instrument traded
Regulatory conditions
Summary
Leverage is a tool that increases market exposure by reducing the required margin.
While it allows larger positions to be opened with smaller capital, it also increases risk and should be used with caution.