Leverage refers to the ability to control a large position in an asset with a relatively small amount of capital. It’s essentially a loan provided by the broker to the trader. Leverage can be expressed as a ratio, such as 2:1, 10:1, or even higher, indicating how much larger the trader’s position is compared to their margin (the required deposit).
For example, with 10:1 leverage, a trader could control a position worth $10,000 with just $1,000 of their own money. While leverage can amplify profits, it also increases the potential for losses, sometimes exceeding the initial margin. Therefore, using leverage carries significant risk and should be managed carefully.
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