Leverage is essentially borrowed money provided by a broker to amplify a trader’s position. It allows traders to control a larger position size with a smaller amount of their own capital. Leverage is typically represented as a ratio, such as 10:1, 50:1, 100:1, and so on. For example, with a leverage of 100:1, a trader can control a position size 100 times larger than their account balance.

Leverage and Risk: While leverage can magnify profits, it also significantly increases the potential for losses. Even a small adverse price movement can lead to substantial losses when trading with high leverage. Traders should use leverage carefully and consider their risk tolerance before entering trades.