Leverage is the single biggest reason traders lose money faster than they expect. Understanding it — and respecting it — is non-negotiable. Here's how leverage and margin actually work.
What leverage is
Leverage lets you control a large position with a small amount of capital. With 10x leverage, $1,000 controls $10,000 of exposure. Your gains and losses are calculated on the full $10,000 — not your $1,000.
What margin is
Margin is the capital your broker requires you to post to open and hold a leveraged position. It's a good-faith deposit, not the cost of the trade.
- Initial margin — what you need to open the position.
- Maintenance margin — what you must keep to hold it.
The margin call
If the trade moves against you and your equity drops below the maintenance level, you get a margin call — add funds or have the position closed (liquidated) automatically. In fast markets, liquidation can happen before you react.
Why it cuts both ways
Leverage multiplies everything:
- A 5% favourable move at 10x is a 50% gain on your margin.
- A 5% adverse move at 10x is a 50% loss — and you can lose more than you put in some markets.
Using leverage sanely
- Size positions by risk, not by maximum available leverage.
- Risk a small, fixed percentage of your account per trade.
- Always trade with a stop-loss in place.
- The fact that you can use 100x never means you should.
Leverage is a tool for precision, not a shortcut to wealth. Treat it like one.
Apply it carefully with F&O basics and risk management, and size trades with the position size calculator. Educational only — not financial advice.