What Is Leverage

Traders may prefer to trade using leverage because it allows them to earn larger profits with relatively smaller amounts of capital investment. Your ability to control larger market positions is greatly enhanced with leveraged broker trading accounts.

Leverage accounts allow you to borrow capital from the broker. The money you have deposited into your leveraged broker account is referred to as margin. This amount of money deposited is a small down payment for the full market position amount. The broker loans you the remaining required capital to maintain your market positions.

For example, if you are not using leverage and decide to buy 100 shares of a company currently priced at $100 per share, you would need $10,000 of capital to open this market position. However, with a leveraged broker account that requires a 10% margin, you only need to deposit $1,000 to control the identical size market position. In this way, your profits are easily magnified but always remember, that with leverage, your risks are also increased.