What is Leverage?

Leverage is borrowed capital provided by your broker, allowing you to control a massive position with a relatively small account balance.

In-Depth Explanation

Leverage is a double-edged sword. It amplifies your profits, but it mathematically amplifies your losses at the exact same rate. In the UK, the FCA restricts retail leverage to a maximum of 30:1 on major forex pairs to protect beginners from blowing their accounts in minutes. This means with £1,000 in your account, you can control a position worth £30,000. However, using maximum leverage is a sign of an amateur. Professional traders rarely utilize more than 5:1 true leverage, as high leverage dramatically reduces the distance the market needs to move against you to trigger a margin call.

Offshore brokers offering 500:1 or 1000:1 leverage are a trap. At 500:1 leverage, a tiny 0.2% price fluctuation against your position will instantly liquidate your entire account.

30:1 Max Leverage

The strict maximum leverage allowed for retail traders by the UK Financial Conduct Authority (FCA).

Source: FCA Regulations

Practical Example

"With 30:1 leverage, a 3.33% drop in the asset's price will completely wipe out 100% of your account margin."

Related Terms

Margin Margin Call Drawdown

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