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What is leverage in trading?

In one line: Leverage lets you control a trade bigger than the money you put up, by borrowing the rest from your broker. It grows both gains and losses.

Trading glossary · Updated 2026-10-21

A simple example

With 50:1 leverage, every $1 you put up controls $50 of currency. To open a $50,000 position, you set aside $1,000. That deposit is the Margin.

Now say price moves 1% against you. On $50,000, that's $500. That's half of your $1,000 deposit, gone from a 1% move. A 1% move the other way would add $500. Leverage didn't change the market. It changed how much each move means to you.

The US limits

For retail forex in the US, the CFTC and NFA cap leverage at 50:1 on major pairs and 20:1 on other pairs. Stock margin accounts usually allow much less. Futures work through margin set by the exchange.

Why it matters

Leverage makes it possible to trade with a small account. It also makes it easy to trade far too big by accident. The broker will let you open a size that one normal day's move can hurt badly.

The fix is to ignore how much leverage is available and size every trade from your Stop loss instead. Risk about 1% of your account, set the stop from the chart, and let the position size calculator pick the size. Used that way, leverage just lets the trade fit in your account.

A common mistake

Thinking more leverage means more opportunity. More leverage only means a bigger trade from the same deposit. If the size isn't tied to your stop, each loss is bigger too, and a short run of losses can empty the account.

The full picture, with margin calls, is in leverage and margin explained.

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