Orders and trading · updated October 21, 2026

What is leverage and how does it magnify your gains and losses

Leverage means controlling a position bigger than your own money, using borrowed funds. With 5:1 leverage, $1,000 gives you a $5,000 position: every 1% move in the price changes your money by 5%.

Leverage formula

Leverage=Position valueYour money (the margin)

Position value: What everything you bought is worth, including the borrowed part.
Your money: The amount you put in yourself, also called the margin.

Worked example

You have $1,000 and open a $5,000 position (5:1 leverage). The price falls 10%.

5:1leverage

−$500loss on the position

−50%loss on your money

A 10% fall in the price halved your money. A 20% fall would wipe it out.

How to read leverage

1:1no leverage: you lose at most what you invested

2:1 - 5:1risky; a small drop costs you a lot

Above 5:1very risky; you can lose everything in days

In the EU, ESMA caps CFD leverage for ordinary investors: from 30:1 on major currencies down to 2:1 on crypto, and 5:1 on stocks.

When leverage can fool you

You lose faster than you think: with 10:1 leverage, a 10% drop takes all your money. The cost of borrowing: you pay daily interest on the borrowed part. The margin call: the broker closes your position automatically when the loss gets close to your money.

Learn it in the Academy

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Questions about leverage

Is leverage good for beginners?

No. It magnifies losses as much as gains, and brokers' own statistics show that most accounts using leverage lose money.

Can I lose more than I deposited?

For ordinary EU investors trading CFDs, no: brokers must offer negative balance protection. With other products, and outside the EU, yes.

These explanations are for information only. They are not a recommendation to buy or sell.

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