What is leverage?
Leverage lets you trade a position larger than the margin set aside in your account. Leverage of 1:10 means margin equal to one tenth of the position's value is set aside. Leverage is not a source of returns; it is a measure of the ratio between position size and margin.
How margin works
When you open a position, part of its value is set aside as margin and cannot be used for other trades until the position is closed. The rest is free margin, which keeps changing with the profit and loss of your open positions. Margin level is the ratio of your equity to the margin in use, and shows how much pressure the account is under.
Leverage magnifies gains and losses alike
Leverage means a small price move produces a large result relative to your margin. The effect works both ways: a move in your favour creates a large profit relative to margin, and the same move against you creates a loss of the same size. The more volatile the price, the faster this is felt.
Margin call and stop out
When losses grow and the margin level falls below a set threshold, the account receives a warning called a margin call. If the level falls further, open positions can be closed automatically to limit further losses. These thresholds are set out in the account terms and are worth knowing before you open a trade.
Leverage and position size
Higher leverage makes it possible to open a bigger position with the same margin, but it does not oblige you to. Setting position size by the amount of risk accepted per trade, rather than by the leverage limit, keeps the effect of leverage under control. Available leverage depends on the product and the account terms.
Example: 1:10 leverage
Hypothetically, a position worth 10,000 US dollars needs 1,000 US dollars of margin at 1:10 leverage. If the price moves 1% against you, the loss is 100 US dollars, which is 10% of the margin set aside. Had the same move been in your favour, the result would have been a profit of the same size. The numbers are for illustration only.
Leverage can make losses grow quickly relative to your margin. Trading leveraged products carries a high level of risk, and you can lose all of the money you deposit.
Read the risk disclosure