How leverage works
Leverage is a loan from your broker that increases your market exposure. With 1:100 leverage, a $1,000 deposit controls a position worth $100,000. The deposit you put up for the position is called margin.
An example
You buy $10,000 of EUR/USD with $1,000 of your own money, which is 10:1 leverage. If the price rises 1%, your position gains $100, a 10% return on your deposit. If it falls 1%, you lose $100, the same 10% of your deposit.
The benefits
- You can trade larger positions than your balance alone would allow.
- Your capital is not tied up in a single trade.
The risks
- Losses are magnified in the same way gains are.
- A small move against you can wipe out a large part of your balance.
- If your account falls below the required margin, positions may be closed automatically.
Using it sensibly
Many professional traders use far less leverage than is available. A simple rule is to risk only a small percentage of your account on any one trade, and to set a stop-loss before you enter. Maximum leverage on Uprime Capital LTD accounts is up to 1:500, depending on your jurisdiction and client classification. A higher limit does not mean you should use all of it.
Educational content, not advice. This article is general information and does not take your circumstances into account. Trading leveraged products carries a high risk of loss.
More from the blog.
Beginner
What is forex trading? A simple guide for beginners
Forex is the world’s largest financial market. Here is what it is, how it works and what to think about before you start.
6 min read
Beginner
What is a pip in forex trading? A simple explanation
A pip is the basic unit of price movement in forex. Understanding it is the first step to understanding profit, loss and risk.
4 min read
Strategy
What is risk management in trading?
You cannot control the market. You can control how much you risk. That is what risk management is.
6 min read
Risk warning. Forex and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Make sure you understand how they work and whether you can afford the high risk of losing your money.
Open your account.
It takes a few minutes online. Start with a demo if you want to look around first.