Leverage: Power and Danger

Leverage is perhaps the most misunderstood tool in trading. Brokers present it as a way to "scale your business," and new traders often fall for its appeal without understanding the risk they are taking.

In this lesson, we will learn what leverage actually is and why it is the main cause of major losses for traders.

What Is Leverage

Leverage allows you to control a position larger than your actual capital.

For example, with 1:10 leverage:

• You have $1,000 in your account
• The broker allows you to open a $10,000 position
• Profit or loss is calculated on $10,000, not on $1,000

This is the "power" — 10 times larger potential profit.

But also — 10 times larger potential loss.