Borrowed money from your broker that lets you control a large position with a small deposit.
Leverage is the multiplier your broker gives you. If your broker offers 1:100 leverage, you can control $100,000 of EUR/USD with just $1,000 of your own money. The other $99,000 is effectively a short-term loan from the broker.
Leverage is not profit. It's a tool — a sharp one. It amplifies every gain AND every loss by the same factor. At 1:100 leverage, a 1% move in EUR/USD moves your P&L by 100% of your margin. Which means it can blow up your account in a single bad trade if you size wrong.
In the US, retail forex leverage is capped at 1:50 for majors by law. Outside the US it can be as high as 1:500 or even 1:1000. High leverage is the #1 reason new traders blow up — not because leverage is evil, but because it makes it too easy to size too big.
A trader with a $500 account and 1:500 leverage could technically open 2.5 lots of EUR/USD. A 20-pip move against them would wipe the whole account. That's the math of over-leveraging.
Frequently asked about leverage
What is a leverage in trading?+
Borrowed money from your broker that lets you control a large position with a small deposit.
When will I see leverage used in real trading?+
In your broker account settings ("Leverage: 1:100") and in margin requirements when you open a trade.
What is the most common mistake traders make with leverage?+
Thinking high leverage means high profit. It doesn't. Leverage is just the MAXIMUM size you can take — the smart traders never use it all. Treat leverage like a credit limit, not a target.
What do experienced traders know about leverage that beginners don't?+
Risk per trade should never be bigger than 1-2% of your account, regardless of leverage. If your broker offers 1:500 and you're using it all, you're gambling — not trading.
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