What is Leverage?
Leverage is the investment strategy of using borrowed money to increase the potential return of an investment. In simpler terms, it gives you the ability to control a large amount of money using very little of your own, while we cover the rest. For example, to control a $500,000 position, we will set aside $1,000 from your account. Your leverage, expressed in ratios, is now 1:500, where every 1 dollar you have has the buying power of $500. In essence, you are trading half a million dollars with only one thousand dollars, and your return will be on the $500,000. Leverage can help magnify your returns, which is great news if the market moves in the direction that you expect. However, the risk with leverage is that it can magnify your losses in precisely the same way as your gains.