What is Leverage?

Borrowed buying power from your broker that multiplies both profits and losses — a tool, not an edge.

Leverage is the broker-provided borrowing that lets a trader control a position larger than their deposit. At 1:100 leverage, $1,000 of margin controls a $100,000 position. Leverage itself does not create risk — position size does — but leverage makes oversized positions possible, which is why it is involved in almost every blown account. The same 50-pip loss that costs a correctly-sized account 1% can cost an over-leveraged account everything.

Professionals treat leverage as a capital-efficiency tool, not a profit multiplier. They size positions from their risk plan first (risking perhaps 1% per trade), and the available leverage simply determines how little margin that position locks up. A useful reframe: leverage decides what you could lose at most; position sizing decides what you will lose when a normal trade fails. Master the second and the first stops being dangerous.