Trading Basics

Leverage and Margin: Power and Risk

Leverage amplifies both gains and losses — use it as a capital efficiency tool, not a profit multiplier.

Key rules

1. Leverage amplifies both profits and losses equally
2. High leverage reduces the buffer before margin call
3. Always size positions based on dollar risk, not leverage available
4. Use leverage as a capital efficiency tool, not a profit multiplier
5. A margin call means forced liquidation at the worst time

Leverage allows you to control a position larger than your account balance. With 10:1 leverage, $1,000 controls $10,000. This magnifies profits proportionally — but also magnifies losses. A 1% move against a 10:1 leveraged position equals a 10% account drawdown.

Margin is the collateral the broker holds while your position is open. If your account falls below the margin requirement, you receive a margin call and may face forced liquidation.