What is Leverage?
The use of borrowed capital or financial instruments to amplify the potential return (and risk) of an investment.
Leverage in finance refers to the strategy of using borrowed money (or derivative products) to increase an investment's potential return. The core idea is to control a large position with a relatively small amount of your own capital (called margin). For example, with 10:1 leverage, a $1,000 investment allows you to control a $10,000 position, with the remaining $9,000 borrowed from a broker.
While leverage can magnify profits if the investment moves in your favor, it also magnifies losses if it moves against you. If the value of the leveraged position falls significantly, the investor may face a margin call, requiring them to deposit more funds or have their position forcibly liquidated. Due to this heightened risk, leveraged trading (common in forex, futures, and with CFDs) is considered suitable only for experienced investors who understand and can manage the risks involved.