Leverage lets a trader control a position much larger than the cash they've actually put up. A broker offering 1:100 leverage, for example, means a $1,000 deposit can control a $100,000 position.

Margin is the portion of your own funds set aside as collateral for a leveraged position — it's not a fee, it's money that gets "locked" while the trade is open.

Why leverage cuts both ways

Leverage doesn't change how much the market moves; it changes how much that movement is worth to you. A 1% move on a $100,000 position is $1,000 — a full 100% of the $1,000 deposit that opened it, in the earlier example. The same mechanism that makes a favorable move meaningfully profitable makes an unfavorable one just as meaningfully damaging.

Margin calls and stop-outs

If losses eat into the margin held as collateral, a broker will typically issue a margin call — a request to add funds — and, if the account keeps losing, may automatically close positions at a stop-out level to prevent the account balance from going negative. This isn't arbitrary; it's a risk control built into how leveraged trading works.

A practical way to think about it

Higher leverage is often marketed as a feature, but from a risk-management standpoint it's more accurate to think of it as a dial that controls how much a given price move can hurt you, not just how much it can help you. Many experienced traders deliberately use less leverage than their broker allows, specifically to keep any single move from having an outsized effect on their account. This ties directly into position sizing, covered in the risk management article in this section.