What Is Leveragein Forex Trading?

Leverage is a tool that allows a trader to control a position far larger than the capital they put down. For example, with leverage of 1:100, a deposit of 1,000 units can control a position worth 100,000 units.

The appeal of leverage is that it gives you broader market exposure with relatively little capital. But this is only one side of the coin: leverage magnifies your potential profit and your potential loss in exactly the same proportion.

The capital required to open and maintain a leveraged position is called margin. As the market moves against you, your available margin decreases. If it falls below a certain level, positions may be closed automatically — a process known as a margin call or stop out.

For this reason, experienced traders use leverage cautiously. They size positions relative to their capital, avoid over-exposure, and rely on risk-management tools such as stop-loss orders. You can review key definitions in our glossary and read our guide to risk management.

Choosing a leverage level that matches your risk tolerance — rather than the maximum available — is one of the most important decisions a new trader makes.

Risk warning: High leverage can lead to the rapid loss of your entire capital. Choose your leverage in line with your risk tolerance and only trade with money you can afford to lose.