What are leverage?

Utilizing a leveraged account in the market requires just a minimal initial deposit, referred to as the "margin." This is a portion of the total capital needed for your position, with the broker providing the rest as a loan.

Leverage empowers you to manage a significantly larger market position than your available capital would normally permit. For example, consider buying 100 shares of a stock priced at $10 each. Traditionally, this would require $1,000. If the stock price rises to $12, your investment's value becomes $1,200, a 20% increase. Conversely, if it drops to $8, your investment falls to $800, a 20% loss.

Now, imagine your broker offers a leveraged account with just a 10% margin requirement. You would need only $100 to control the same 100 shares. If the stock price climbs to $12, your gain is $200, or 200% more than your initial investment. But if the price falls to $8, you face a $200 loss, double your initial capital.

Leverage thus offers the potential for substantial profits but also carries increased risks of significant losses. It's crucial to consider these risks and adjust your leveraged positions to align with your risk tolerance when trading on a leveraged account.