Understanding 'Leverage' and 'Margin' in Plain Language
Leverage and margin are powerful tools that allow traders to control large positions with a relatively small amount of capital—but they also increase risk.
Leverage is expressed as a ratio, such as 10:1 or 100:1. For example, with 10:1 leverage, you can control a $10,000 position with just $1,000 of your own funds. While this magnifies potential profits, it also amplifies losses.
Margin is the amount of your own money required to open and maintain a leveraged position. It acts as a security deposit. If your trade moves against you and your losses approach the margin amount, you may receive a “margin call,” requiring you to add more funds or close the position.
Used wisely, leverage can enhance opportunities—but understanding its risks is crucial before trading.
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