{"id":85329,"date":"2023-07-14T23:53:00","date_gmt":"2023-07-14T23:53:00","guid":{"rendered":"https:\/\/arielle.com.au\/?p=85329"},"modified":"2026-05-04T00:14:35","modified_gmt":"2026-05-04T00:14:35","slug":"what-is-leverage-in-trading","status":"publish","type":"post","link":"https:\/\/arielle.com.au\/what-is-leverage-in-trading\/","title":{"rendered":"What Is Leverage In Trading?"},"content":{"rendered":"<span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Reading Time: <\/span> <span class=\"rt-time\"> 9<\/span> <span class=\"rt-label rt-postfix\">minutes<\/span><\/span>\n<p>Leverage trading is a powerful tool that allows you to control more substantial positions in the market than your available capital would allow otherwise. Often called a double-edged sword, leverage in trading is capable of both amplifying potential gains and increasing potential losses.<\/p>\n\n\n\n<div class=\"indent-wrapper\"><div class=\"indented-text\"><span>Let\u2019s unpack the meaning of the term \u201cleverage\u201d in the context of trading on financial markets.<\/span><\/div><\/div>\n\n\n\n<p>We will discuss using leverage to amplify your buying power, reveal (substantial) risks involved, show you examples of leverage trading, and talk about limits to how much leverage you can use.<\/p>\n\n\n\n<p><strong>(Related: <a href=\"https:\/\/arielle.com.au\/forex-trading-scams\/\">How To Spot Forex Trading Scams<\/a>).<\/strong><\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Is Leverage?<\/strong><\/h2>\n\n\n\n<p>You&#8217;ll often see an option to apply leverage if you trade CFDs, forex or common stocks using online brokerages and trading apps.<\/p>\n\n\n\n<p>Leverage is using a small amount of money to gain access to a larger sum \u2014 borrowed from the broker \u2014 which magnifies your risks and potential returns. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"595\" src=\"https:\/\/arielle.com.au\/wp-content\/uploads\/2023\/06\/what-is-leverage-in-trading-and-investing-1024x595.jpg\" alt=\"what is leverage\" class=\"wp-image-87961\" srcset=\"https:\/\/arielle.com.au\/wp-content\/uploads\/2023\/06\/what-is-leverage-in-trading-and-investing-1024x595.jpg 1024w, https:\/\/arielle.com.au\/wp-content\/uploads\/2023\/06\/what-is-leverage-in-trading-and-investing-300x174.jpg 300w, https:\/\/arielle.com.au\/wp-content\/uploads\/2023\/06\/what-is-leverage-in-trading-and-investing-768x446.jpg 768w, https:\/\/arielle.com.au\/wp-content\/uploads\/2023\/06\/what-is-leverage-in-trading-and-investing-1536x893.jpg 1536w, https:\/\/arielle.com.au\/wp-content\/uploads\/2023\/06\/what-is-leverage-in-trading-and-investing.jpg 1640w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>You incur losses (or make profits) based on the size of your inflated position, rather than the funds in your account.<\/p>\n\n\n\n<p>Leveraged trades are commonly taken out when purchasing derivative financial instruments (e.g., futures and options).<\/p>\n\n\n\n<p><strong>(Related: <a href=\"https:\/\/arielle.com.au\/ig-review\/\">IG Review: Good Platform For CFD Traders?<\/a>)<\/strong><\/p>\n\n\n\n<p>That is, rather than investing to own the underlying asset, you speculate on the change in the price of that asset.<\/p>\n\n\n\n<div class=\"wp-block-create-block-tip-block tip-wrapper\"><div class=\"row\"><div class=\"col-md-12\"><div class=\"card-wrapper\"><div class=\"card-title\"><div class=\"icon\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"20\" height=\"20\" viewBox=\"0 0 20 20\" fill=\"none\"><path fill-rule=\"evenodd\" clip-rule=\"evenodd\" d=\"M7.5 14.33a5 5 0 1 1 5 0v4.17h-5v-4.17Zm4.25-1.3-.75.44V17H9v-3.53l-.75-.44a3.5 3.5 0 1 1 3.5 0Z\" fill=\"#656E83\"><\/path><path d=\"M9.25 1v2h1.5V1h-1.5ZM5.53 4.47l-1.5-1.5-1.06 1.06 1.5 1.5 1.06-1.06ZM15.53 5.53l1.5-1.5-1.06-1.06-1.5 1.5 1.06 1.06ZM1 10.75h2v-1.5H1v1.5ZM17 10.75h2v-1.5h-2v1.5Z\" fill=\"#656E83\"><\/path><\/svg><\/div><h3 placeholder=\"Tip Title Goes Here\">Important!<\/h3><\/div><div class=\"card-content\"><p placeholder=\"Tip Content Goes Here\">The speculative and volatile risk-reward nature of leveraged trading \u2014 and brokers&#8217; history of promoting the practice to unsophisticated investors \u2014 has seen them described as \u201c<a href=\"https:\/\/www.afr.com\/companies\/financial-services\/financial-heroin-hits-court-hits-cfd-firms-with-75m-penalty-20201019-p566df\">financial heroin hits<\/a>\u201d by the Australian Securities And Investments Commission (ASIC).<\/p><\/div><\/div><\/div><\/div><\/div>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How Much Funds Can You Access With Leveraged Trading?<\/strong><\/h2>\n\n\n\n<p>The amount that you can leverage will depend on a range of factors, including:<\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>Amount<\/strong>\u00a0of money in our account (you need sufficient funds to cover the initial margin)<\/li><li><strong>Size<\/strong>\u00a0of the position you want to open.<\/li><li><strong>Your<\/strong>\u00a0credit history.<\/li><li><strong>Margin requirement<\/strong> (more about this shortly).<\/li><li><strong>Market<\/strong> and asset you want to trade (riskier assets attract lower leverage ratios).<\/li><li><strong>Regulatory<\/strong>\u00a0<strong>environment<\/strong> your broker operates in (ASIC-regulated brokers are all <a href=\"https:\/\/arielle.com.au\/asic-cfd-leverage-restrictions\/\">capped at 30:1 leverage<\/a>).<\/li><\/ul><\/div><\/div>\n\n\n\n<div class=\"indent-wrapper\"><div class=\"indented-text\"><span>Leverage trading is similar to margin trading in that you borrow from the broker to fund your trade. <\/span><\/div><\/div>\n\n\n\n<p>But when <a href=\"https:\/\/arielle.com.au\/how-to-invest-in-stocks-australia\/\">buying stock<\/a> on margin, you can only borrow against the value of your existing collateral (the value of shares you already own).<\/p>\n\n\n\n<p><strong>(Related: <a href=\"https:\/\/arielle.com.au\/magnificent-7-stocks\/\">Why Are Magnificent 7 Stocks Soaring<\/a>)?<\/strong><\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Is Leverage Ratio?<\/strong><\/h2>\n\n\n\n<p>Most brokerages and exchanges represent the amount of leverage you can obtain using a leverage ratio formula  that looks like this:<\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>5:1<\/strong><\/li><li><strong>10:1<\/strong><\/li><li><strong>30:1<\/strong><\/li><\/ul><\/div><\/div>\n\n\n\n<p>For example, using 10:1 leverage you can control up to $10,000 using only $1,000 in your trading account.<\/p>\n\n\n\n<div class=\"indent-wrapper\"><div class=\"indented-text\"><span>In other words, for every $1 in your account, you can place a trade that\u2019s 10X greater, borrowing the delta from your broker.<\/span><\/div><\/div>\n\n\n\n<div class=\"wp-block-create-block-tip-block tip-wrapper\"><div class=\"row\"><div class=\"col-md-12\"><div class=\"card-wrapper\"><div class=\"card-title\"><div class=\"icon\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"20\" height=\"20\" viewBox=\"0 0 20 20\" fill=\"none\"><path fill-rule=\"evenodd\" clip-rule=\"evenodd\" d=\"M7.5 14.33a5 5 0 1 1 5 0v4.17h-5v-4.17Zm4.25-1.3-.75.44V17H9v-3.53l-.75-.44a3.5 3.5 0 1 1 3.5 0Z\" fill=\"#656E83\"><\/path><path d=\"M9.25 1v2h1.5V1h-1.5ZM5.53 4.47l-1.5-1.5-1.06 1.06 1.5 1.5 1.06-1.06ZM15.53 5.53l1.5-1.5-1.06-1.06-1.5 1.5 1.06 1.06ZM1 10.75h2v-1.5H1v1.5ZM17 10.75h2v-1.5h-2v1.5Z\" fill=\"#656E83\"><\/path><\/svg><\/div><h3 placeholder=\"Tip Title Goes Here\">Important!<\/h3><\/div><div class=\"card-content\"><p placeholder=\"Tip Content Goes Here\">Leverage is sometimes represented with an \u201cX\u201d. For example, 5X, 10X and 20X. The format has the same meaning as 5:1, 10:1 and 20:1, and is more commonly seen in crypto markets.<\/p><\/div><\/div><\/div><\/div><\/div>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Is Margin?<\/strong><\/h2>\n\n\n\n<p>Margin is the funds you need to provide based on your chosen leverage ratio.&nbsp;<\/p>\n\n\n\n<p>For example, if you want to buy $10,000 of Rio Tinto at 10:1 leverage, you need to deposit $1,000 of your own cold hard cash, while your broker will supply the remaining $9,000.<\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>The $1,000 deposit<\/strong> is your margin.<\/li><\/ul><\/div><\/div>\n\n\n\n<p>Keeping a leveraged position open required maintaining a sufficient margin. <\/p>\n\n\n\n<div class=\"wp-block-create-block-tip-block tip-wrapper\"><div class=\"row\"><div class=\"col-md-12\"><div class=\"card-wrapper\"><div class=\"card-title\"><div class=\"icon\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"20\" height=\"20\" viewBox=\"0 0 20 20\" fill=\"none\"><path fill-rule=\"evenodd\" clip-rule=\"evenodd\" d=\"M7.5 14.33a5 5 0 1 1 5 0v4.17h-5v-4.17Zm4.25-1.3-.75.44V17H9v-3.53l-.75-.44a3.5 3.5 0 1 1 3.5 0Z\" fill=\"#656E83\"><\/path><path d=\"M9.25 1v2h1.5V1h-1.5ZM5.53 4.47l-1.5-1.5-1.06 1.06 1.5 1.5 1.06-1.06ZM15.53 5.53l1.5-1.5-1.06-1.06-1.5 1.5 1.06 1.06ZM1 10.75h2v-1.5H1v1.5ZM17 10.75h2v-1.5h-2v1.5Z\" fill=\"#656E83\"><\/path><\/svg><\/div><h3 placeholder=\"Tip Title Goes Here\">Important!<\/h3><\/div><div class=\"card-content\"><p placeholder=\"Tip Content Goes Here\">If you experience losses that threaten to exceed your initial margin amount, you\u2019ll be prompted to top up your account to keep trading \u2014 known as a <a href=\"https:\/\/corporatefinanceinstitute.com\/resources\/wealth-management\/margin-call\/\">margin call<\/a>.<\/p><\/div><\/div><\/div><\/div><\/div>\n\n\n\n<div style=\"height:55px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Are Examples Of Leverage In Everyday Life?<\/strong><\/h2>\n\n\n\n<p>You may not be aware of this, but you\u2019re probably already using leverage because it simply refers to investing in underlying assets with borrowed money.<\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Example 1: Your Home Loan.<\/strong><\/h3>\n\n\n\n<p>Not many people have enough cash to buy a house or investment property outright, so they use leverage. <\/p>\n\n\n\n<div class=\"indent-wrapper\"><div class=\"indented-text\"><span>For example, let&#8217;s say you put down a deposit of 20% to buy a $5 million home.<\/span><\/div><\/div>\n\n\n\n<p>You control a $5m asset using $1m of your money and take on the risks and downsides \u2014 such as changes in property values, paying interest, and managing insurance and maintenance.<\/p>\n\n\n\n<p><strong>(Related: <a href=\"https:\/\/arielle.com.au\/pepperstone-review\/\">Pepperstone Review: Best CFD Broker In Australia?<\/a>)<\/strong><\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong><strong>Example 2: <\/strong>Your Car Loan.<\/strong><\/h3>\n\n\n\n<p>Few people buy expensive cars (aka depreciating assets) with cash. Usually, a 10% deposit is enough to put one in your driveway.<\/p>\n\n\n\n<div class=\"indent-wrapper\"><div class=\"indented-text\"><span>Fancy a new Range Rover Sport for $200K? Give $20K to the dealer, and it will magically appear in your driveway. <\/span><\/div><\/div>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Example 3: Your Share Portfolio.<\/strong><\/h3>\n\n\n\n<p>You want to buy Tesla stock because you think Elon\u2019s leadership will result in 15% growth, but only have $5,000 in spare cash.<\/p>\n\n\n\n<p>No problem.<\/p>\n\n\n\n<p>You can borrow $50,000 from your bank at 5% to buy the Tesla stock. If your instincts about Elon and his company are right, you&#8217;ll net a 10% return (more about this shortly). <\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Are Some Examples Of Leverage In Trading?<\/strong><\/h2>\n\n\n\n<p>Day traders and investors have effortless and streamlined access to leverage through <a href=\"https:\/\/arielle.com.au\/best-online-broker-australia\/\">online brokerages<\/a>, <a href=\"https:\/\/arielle.com.au\/best-stock-trading-app-australia\/\">trading platforms<\/a>, <a href=\"https:\/\/arielle.com.au\/best-stock-trading-app-australia\/\">mobile investing apps<\/a> and <a href=\"https:\/\/arielle.com.au\/best-cfd-trading-platform-australia\/\">dedicated CFD trading platforms<\/a>. <\/p>\n\n\n\n<p>No clunky loan applications are needed. You select the leverage ratio that aligns with your appetite for risk and the goals of your trading strategy.<\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Example 1: Forex Markets.<\/strong><\/h3>\n\n\n\n<p>International forex trading platforms typically offer larger leverage ratios because the value of currencies doesn\u2019t fluctuate greatly daily. <a href=\"https:\/\/arielle.com.au\/best-forex-trading-platforms-australia\/\">Australian forex platforms<\/a>, however, are throttled back to 30:1 by ASIC.<\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>Let\u2019s say you want to<\/strong> open a position of $50,000 for a USD\/AUD pair, at ASIC-mandated 30:1 maximum leverage.<\/li><li><strong>You would need to tie up<\/strong> only $1,667 of your own funds.<\/li><\/ul><\/div><\/div>\n\n\n\n<p><strong>(Related: <a href=\"https:\/\/arielle.com.au\/what-is-forex-trading-australia\/\">Forex Trading In Australia: Risks And Rewards<\/a>).<\/strong><\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Example 2: Stock Markets.<\/strong><\/h3>\n\n\n\n<p>Back to Elon, let&#8217;s say you want to buy $50,000 of Tesla stock at a more sensible, but still very high 20:1 leverage. <\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>You end up controlling<\/strong> a $50,000 position by depositing $2,500 of your own funds.<\/li><\/ul><\/div><\/div>\n\n\n\n<div style=\"height:61px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Get Access To Leveraged Trading With Our Featured Partner.<\/strong><\/h3>\n\n\n\n<p>Trade Australian and international CFDs with razor-thin spreads via Vantage:<\/p>\n\n\n\n<div style=\"height:34px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-uagb-marketing-button uagb-marketing-btn__align-center uagb-marketing-btn__align-text-center uagb-marketing-btn__icon-after uagb-block-040e2a6f wp-block-button\"><a href=\"https:\/\/arielle.com.au\/recommends\/vantage-cfd\/\" class=\"uagb-marketing-btn__link wp-block-button__link\" target=\"_blank\" rel=\"noopener noreferrer\"><span class=\"uagb-marketing-btn__title\">Start Trading CFDs<\/span><svg xmlns=\"https:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 512 512\"><path d=\"M384 320c-17.67 0-32 14.33-32 32v96H64V160h96c17.67 0 32-14.32 32-32s-14.33-32-32-32L64 96c-35.35 0-64 28.65-64 64V448c0 35.34 28.65 64 64 64h288c35.35 0 64-28.66 64-64v-96C416 334.3 401.7 320 384 320zM488 0H352c-12.94 0-24.62 7.797-29.56 19.75c-4.969 11.97-2.219 25.72 6.938 34.88L370.8 96L169.4 297.4c-12.5 12.5-12.5 32.75 0 45.25C175.6 348.9 183.8 352 192 352s16.38-3.125 22.62-9.375L416 141.3l41.38 41.38c9.156 9.141 22.88 11.84 34.88 6.938C504.2 184.6 512 172.9 512 160V24C512 10.74 501.3 0 488 0z\"><\/path><\/svg><p class=\"uagb-marketing-btn__prefix\"><\/p><\/a><\/div>\n\n\n\n<div style=\"height:28px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<pre class=\"wp-block-preformatted\">CFD Service. Your capital is at risk. 74-89% of CFD traders lose money.<\/pre>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Is The Benefit Of Using Leverage In Trading?<\/strong><\/h2>\n\n\n\n<p>You can magnify your profits by taking out a larger position, without having to put up the trading capital yourself. <\/p>\n\n\n\n<div class=\"indent-wrapper\"><div class=\"indented-text\"><span>You maximise the impact of your money to potentially improve your upside, but accept increased risk.<\/span><\/div><\/div>\n\n\n\n<p>Following our example of buying Tesla stock, you\u2019ll make $7.5K gross profit, pay $2.5K in interest and net $5K in the first year \u2013 if your predictions about the company are correct. <\/p>\n\n\n\n<p>Conversely, a direct investment in shares using your $5,000 of available cash on hand, would have resulted in a net return of $750.<\/p>\n\n\n\n<p><strong>(Related: <a href=\"https:\/\/arielle.com.au\/what-is-slippage-in-trading\/\">What Is Slippage In Trading?<\/a>)<\/strong><\/p>\n\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong><strong>What Is The Downside Of Leveraged Trading?<\/strong><\/strong><\/h2>\n\n\n\n<p>You can face much larger losses &#8211; because there&#8217;s no such thing as free money. <\/p>\n\n\n\n<p>You can lose significantly more, and much faster, when making leveraged trades compared to <a href=\"https:\/\/arielle.com.au\/investing-in-shares-for-beginners\/\">traditional investing approaches<\/a>.<\/p>\n\n\n\n<p>Let\u2019s say Tesla shares drop by 15% because Elon gets cancelled for tweeting something silly (as he has been known to do). Based on the leveraged position we described earlier:<\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>Your portfolio<\/strong> is now worth $42.5, and you\u2019re still paying 5% on the $50K you borrowed.<\/li><li><strong>You lost<\/strong> $2.5K in interest, plus $7.5K in assets = $10,000.<\/li><\/ul><\/div><\/div>\n\n\n\n<p>Whereas, if you simply invested your own $5,000 without using any leverage, you would have been only $750 down, with a net position of $4,250.<\/p>\n\n\n\n<div class=\"indent-wrapper\"><div class=\"indented-text\"><span>High leverage ratios make it more likely that you\u2019ll lose all of your funds as a result of small price movements against your position. <\/span><\/div><\/div>\n\n\n\n<p>You\u2019ll also pay interest on your borrowed capital, which depletes your funds and eats into potential profits.<\/p>\n\n\n\n<p>Have a look at this table to see how high leverage affects your trading account.<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-table is-style-stripes\"><table><thead><tr><th class=\"has-text-align-center\" data-align=\"center\">Leverage<\/th><th class=\"has-text-align-center\" data-align=\"center\">% Change In Asset Price<\/th><th class=\"has-text-align-center\" data-align=\"center\">% Change In Account<\/th><\/tr><\/thead><tbody><tr><td class=\"has-text-align-center\" data-align=\"center\">100:1<\/td><td class=\"has-text-align-center\" data-align=\"center\">1%<\/td><td class=\"has-text-align-center\" data-align=\"center\">100%<\/td><\/tr><tr><td class=\"has-text-align-center\" data-align=\"center\">50:1<\/td><td class=\"has-text-align-center\" data-align=\"center\">1%<\/td><td class=\"has-text-align-center\" data-align=\"center\">50%<\/td><\/tr><tr><td class=\"has-text-align-center\" data-align=\"center\">30:1<\/td><td class=\"has-text-align-center\" data-align=\"center\">1%<\/td><td class=\"has-text-align-center\" data-align=\"center\">30%<\/td><\/tr><tr><td class=\"has-text-align-center\" data-align=\"center\">10:1<\/td><td class=\"has-text-align-center\" data-align=\"center\">1%<\/td><td class=\"has-text-align-center\" data-align=\"center\">10%<\/td><\/tr><tr><td class=\"has-text-align-center\" data-align=\"center\">5:1<\/td><td class=\"has-text-align-center\" data-align=\"center\">1%<\/td><td class=\"has-text-align-center\" data-align=\"center\">5%<\/td><\/tr><tr><td class=\"has-text-align-center\" data-align=\"center\">3:1<\/td><td class=\"has-text-align-center\" data-align=\"center\">1%<\/td><td class=\"has-text-align-center\" data-align=\"center\">3%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>What this shows is that when using leverage ratio of 100:1, a movement of 1% in the price of the asset will create a 100% change in your trading account.&nbsp;<\/p>\n\n\n\n<p>Yes, if the price change is in your favour, you&#8217;ll double our money. But if it\u2019s not, you&#8217;ll get wiped out entirely.&nbsp;<\/p>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Tightening Of Regulations Around Leveraged Trading.<\/strong><\/h2>\n\n\n\n<p>ASIC conducted a major <a href=\"https:\/\/asic.gov.au\/about-asic\/news-centre\/find-a-media-release\/2020-releases\/20-254mr-asic-product-intervention-order-strengthens-cfd-protections\/\">regulatory overhaul<\/a> of the Australian forex and CFD market in 2020, after their investigations revealed major losses from leveraged trades by retail investors.<\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>ASIC was spurred into action<\/strong> after discovering most retail clients experience significant losses when trading CFDs.<\/li><\/ul><\/div><\/div>\n\n\n\n<p>In fact, beginner investors lost more than $774 million in one five-week period during 2020, which also resulted in over 15,000 accounts going into negative balance, owing $10.9 million.<\/p>\n\n\n\n<div class=\"indent-wrapper\"><div class=\"indented-text\"><span>The regulator issued a product intervention order in March 2021 that placed limits on maximum leverage ratios, and required brokers to help protect traders against going into negative balance.<\/span><\/div><\/div>\n\n\n\n<p>Leverage trading ratio that brokers can offer has been limited to:<\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>30:1<\/strong> for FX majors.<\/li><li><strong>5:1<\/strong> for shares.<\/li><li><strong>2:1<\/strong> for crypto.<\/li><\/ul><\/div><\/div>\n\n\n\n<p>Designed to help Australian investors make more sober decisions and minimise broker tactics to encourage risky trades, the restrictions will stay in place until their next review, in May 2027.<\/p>\n\n\n\n<p><strong>(Related: <a href=\"https:\/\/arielle.com.au\/best-crypto-exchange-australia\/\">Best Cryptocurrency Exchanges In Australia<\/a>).<\/strong><\/p>\n\n\n\n<p>The changes have reduced worst-case scenarios associated with the overuse of leverage by novice investors. <\/p>\n\n\n\n<div class=\"wp-block-create-block-tip-block tip-wrapper\"><div class=\"row\"><div class=\"col-md-12\"><div class=\"card-wrapper\"><div class=\"card-title\"><div class=\"icon\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"20\" height=\"20\" viewBox=\"0 0 20 20\" fill=\"none\"><path fill-rule=\"evenodd\" clip-rule=\"evenodd\" d=\"M7.5 14.33a5 5 0 1 1 5 0v4.17h-5v-4.17Zm4.25-1.3-.75.44V17H9v-3.53l-.75-.44a3.5 3.5 0 1 1 3.5 0Z\" fill=\"#656E83\"><\/path><path d=\"M9.25 1v2h1.5V1h-1.5ZM5.53 4.47l-1.5-1.5-1.06 1.06 1.5 1.5 1.06-1.06ZM15.53 5.53l1.5-1.5-1.06-1.06-1.5 1.5 1.06 1.06ZM1 10.75h2v-1.5H1v1.5ZM17 10.75h2v-1.5h-2v1.5Z\" fill=\"#656E83\"><\/path><\/svg><\/div><h3 placeholder=\"Tip Title Goes Here\">Important!<\/h3><\/div><div class=\"card-content\"><p placeholder=\"Tip Content Goes Here\">Within six months, ASIC found a 91% reduction in combined net losses by retail accounts trading CFDs.<\/p><\/div><\/div><\/div><\/div><\/div>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How To Minimise Risk When Using Leverage.<\/strong><\/h2>\n\n\n\n<p>Australians engaging in leveraged trading can take the following risk-mitigating steps:<\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>Use stop losses:<\/strong> A stop loss lets you determine the when the broker should automatically close a position. The level you set is known as the stop price.<\/li><li><strong>Improve your sophistication<\/strong>: Trade in line with an investment strategy or business plan that helps you gauge when trading in certain markets is a good or bad idea. Stay abreast of news and market volatility, so you can avoid trading at inopportune times.<\/li><li><strong>Negative balance protection:<\/strong> ASIC-registered brokers are required to offer negative balance protection, which ensures that traders cannot lose more than their account balance, even if their positions move significantly against them.<\/li><li><strong>Diversify your portfolio:<\/strong>\u00a0Diversification can spread risk across different assets, reducing the impact of losses on any single position. Also consider multiple trades with a position size that doesn\u2019t affect your overall capital, rather than placing fewer large trades.<\/li><\/ul><\/div><\/div>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Get Access To Leveraged Trading With Our Featured Partner.<\/strong><\/h3>\n\n\n\n<p>Trade Australian and international CFDs on shares, indices, commodities and forex:<\/p>\n\n\n\n<div style=\"height:34px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-uagb-marketing-button uagb-marketing-btn__align-center uagb-marketing-btn__align-text-center uagb-marketing-btn__icon-after uagb-block-176f5fcb wp-block-button\"><a href=\"https:\/\/arielle.com.au\/recommends\/vantage-cfd\/\" class=\"uagb-marketing-btn__link wp-block-button__link\" target=\"_blank\" rel=\"noopener noreferrer\"><span class=\"uagb-marketing-btn__title\">Start Trading CFDs<\/span><svg xmlns=\"https:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 512 512\"><path d=\"M384 320c-17.67 0-32 14.33-32 32v96H64V160h96c17.67 0 32-14.32 32-32s-14.33-32-32-32L64 96c-35.35 0-64 28.65-64 64V448c0 35.34 28.65 64 64 64h288c35.35 0 64-28.66 64-64v-96C416 334.3 401.7 320 384 320zM488 0H352c-12.94 0-24.62 7.797-29.56 19.75c-4.969 11.97-2.219 25.72 6.938 34.88L370.8 96L169.4 297.4c-12.5 12.5-12.5 32.75 0 45.25C175.6 348.9 183.8 352 192 352s16.38-3.125 22.62-9.375L416 141.3l41.38 41.38c9.156 9.141 22.88 11.84 34.88 6.938C504.2 184.6 512 172.9 512 160V24C512 10.74 501.3 0 488 0z\"><\/path><\/svg><p class=\"uagb-marketing-btn__prefix\"><\/p><\/a><\/div>\n\n\n\n<div style=\"height:28px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<pre class=\"wp-block-preformatted\">CFD Service. Your capital is at risk. 74-89% of CFD traders lose money.<\/pre>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Frequently Asked Questions About Leveraged Trading.<\/strong><\/h2>\n\n\n\n<p>While leverage trading is quite a simple concept, it tends to have complicated consequences. <\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What Is A Margin Call?<\/strong><\/h3>\n\n\n\n<p>Dreaded by investors or all levels. A margin call is a warning provided by your broker or financial institution, to let you know that your losses are threatening to deplete your initial margin (or have already done so).&nbsp;<\/p>\n\n\n\n<p>In this case, you must deposit more money into your account to keep your trading positions open. <\/p>\n\n\n\n<div class=\"indent-wrapper\"><div class=\"indented-text\"><span><em>Failure to add more funds after a margin call will result in the automatic closure of your open trading positions and total loss of capital.<\/em><\/span><\/div><\/div>\n\n\n\n<p>However, topping up your accounts after a margin call comes with the risk that you\u2019ll lose even more. Knowing when to close a position and cut your losses is part of becoming a wiser trader.<\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What About Trading Multiple Positions?<\/strong><\/h3>\n\n\n\n<p>Trading multiple positions is a common practice in leverage trading and involves opening various trades simultaneously. Reasons traders might chose to open multiple positions include:<\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>Protection<\/strong>: You can spread your risk across multiple trades or cover both directions of price movement as a potential risk management strategy.<\/li><li><strong>Higher<\/strong> <strong>rewards<\/strong>: Stacking trades in the same asset at different price levels can boost overall profits as the market trends in the right direction. It\u2019s risky, and to be effective you\u2019ll need to set stop-loss orders and take profits as trades pan out.<\/li><\/ul><\/div><\/div>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What Investments Can Be Leveraged?<\/strong><\/h3>\n\n\n\n<p>You can apply leverage to a number of asset classes. This will vary from broker to broker, but as a rule of thumb, Australian investors have access to leveraged trading on: <\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>Forex <\/strong>currency pairs (e.g., GPB\/USD, AUD\/USD). <\/li><li><strong>Commodities <\/strong>(e.g., gold, silver, oil, and natural gas).<\/li><li><strong>Stocks, indices and ETFs<\/strong> from global exchanges (e.g., NYSE, <a href=\"https:\/\/arielle.com.au\/what-is-asx200\/\">ASX200<\/a>, NASDAQ).<\/li><li><strong>Cryptocurrencies<\/strong> (e.g., Bitcoin, Ethereum, and Cardano).<\/li><\/ul><\/div><\/div>\n\n\n\n<p><strong>(Related: <a href=\"https:\/\/arielle.com.au\/what-is-the-bitcoin-halving\/\">What Bitcoin Halving Means For Crypto<\/a>).<\/strong><\/p>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What Is The Maximum Amount Of Leverage I Can Get In Australia?<\/strong><\/h3>\n\n\n\n<p>While&nbsp;<a href=\"https:\/\/fx-australia.com\/forex-brokers-australia\/australian-asic-regulated-forex-brokers\/\">ASIC-regulated brokers<\/a>&nbsp;can offer retail forex traders a maximum of 30:1 leverage for major currency pairs.&nbsp;That means for every $1,000 you invest, you can make forex trades worth $30,000.<\/p>\n\n\n\n<p>Other leverage limits include:<\/p>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-table is-style-stripes\"><table><tbody><tr><td><strong>20:1<\/strong><\/td><td>Minor currency pairs, gold or a major stock market index.<\/td><\/tr><tr><td><strong>10:1<\/strong><\/td><td>Commodities (other than gold) or minor stock Markey index.<\/td><\/tr><tr><td><strong>2:1<\/strong><\/td><td>Cryptocurrencies.<\/td><\/tr><tr><td><strong>5:1<\/strong><\/td><td>Shares and other assets.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>Internationally registered brokers can offer greater leverage ratios to Australian clients, up to 500:1 or even 1000:1. <\/p>\n\n\n\n<div class=\"wp-block-create-block-tip-block tip-wrapper\"><div class=\"row\"><div class=\"col-md-12\"><div class=\"card-wrapper\"><div class=\"card-title\"><div class=\"icon\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"20\" height=\"20\" viewBox=\"0 0 20 20\" fill=\"none\"><path fill-rule=\"evenodd\" clip-rule=\"evenodd\" d=\"M7.5 14.33a5 5 0 1 1 5 0v4.17h-5v-4.17Zm4.25-1.3-.75.44V17H9v-3.53l-.75-.44a3.5 3.5 0 1 1 3.5 0Z\" fill=\"#656E83\"><\/path><path d=\"M9.25 1v2h1.5V1h-1.5ZM5.53 4.47l-1.5-1.5-1.06 1.06 1.5 1.5 1.06-1.06ZM15.53 5.53l1.5-1.5-1.06-1.06-1.5 1.5 1.06 1.06ZM1 10.75h2v-1.5H1v1.5ZM17 10.75h2v-1.5h-2v1.5Z\" fill=\"#656E83\"><\/path><\/svg><\/div><h3 placeholder=\"Tip Title Goes Here\">Important!<\/h3><\/div><div class=\"card-content\"><p placeholder=\"Tip Content Goes Here\">You need to weigh the risks of trading with a broker not covered by Australian regulations. These are  designed to protect retail investors from manipulative and fraudulent practices. It may be difficult to resolve any issues or disputes if they arise as unregulated brokers are not subject to same levels of scrutiny by the regulator if they act outside the law.<\/p><\/div><\/div><\/div><\/div><\/div>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Why Is Leverage Trading Called A Double-Edged Sword?<\/strong><\/h3>\n\n\n\n<p>Leverage can have both positive and negative consequences, in equal measure. That\u2019s because both your profit and loss are calculated on the full size of your position \u2013 not the margin amount that you put in.<\/p>\n\n\n\n<div class=\"arrow-wrapper\"><div class=\"arrow-list\"><ul><li><strong>If the market moves in your favour<\/strong>, you\u2019ll see magnified profit based on your full position size.<\/li><li>I<strong>f the market moves against your position<\/strong>, you\u2019ll suffer a magnified loss, calculated on your full position.\u00a0<\/li><\/ul><\/div><\/div>\n\n\n\n<div style=\"height:60px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Is Leverage Trading Recommended For Beginners?<\/strong><\/h3>\n\n\n\n<p>The higher the leverage, the higher the chances of your account being wiped out &#8211; especially if you\u2019re trading without a stop loss.<\/p>\n\n\n\n<div class=\"indent-wrapper\"><div class=\"indented-text\"><span>This is why beginners should dabble in leveraged trading with a lot of conservativism and caution.<\/span><\/div><\/div>\n\n\n\n<div style=\"height:40px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Final Words About Leveraged Trading.<\/strong><\/h2>\n\n\n\n<p>So, what is leverage in investing? <\/p>\n\n\n\n<p>Leveraged trading cuts both ways. It magnifies your exposure and your potential losses, but&nbsp;used sensibly, can be a potent tool for potentially delivering more profit. <\/p>\n\n\n\n<div class=\"wp-block-create-block-tip-block tip-wrapper\"><div class=\"row\"><div class=\"col-md-12\"><div class=\"card-wrapper\"><div class=\"card-title\"><div class=\"icon\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"20\" height=\"20\" viewBox=\"0 0 20 20\" fill=\"none\"><path fill-rule=\"evenodd\" clip-rule=\"evenodd\" d=\"M7.5 14.33a5 5 0 1 1 5 0v4.17h-5v-4.17Zm4.25-1.3-.75.44V17H9v-3.53l-.75-.44a3.5 3.5 0 1 1 3.5 0Z\" fill=\"#656E83\"><\/path><path d=\"M9.25 1v2h1.5V1h-1.5ZM5.53 4.47l-1.5-1.5-1.06 1.06 1.5 1.5 1.06-1.06ZM15.53 5.53l1.5-1.5-1.06-1.06-1.5 1.5 1.06 1.06ZM1 10.75h2v-1.5H1v1.5ZM17 10.75h2v-1.5h-2v1.5Z\" fill=\"#656E83\"><\/path><\/svg><\/div><h3 placeholder=\"Tip Title Goes Here\">Disclaimer.<\/h3><\/div><div class=\"card-content\"><p placeholder=\"Tip Content Goes Here\">The information presented here is general in nature and does not endorse any investment product, market, provider, or service. It is not intended as financial advice or a recommendation to trade &#8211; or not to trade. Trading futures, shares, ETFs, options, CFDs, and forex involves a high level of risk and may result in significant losses, particularly when leverage is used. Past performance does not guarantee future results. Before trading, consider whether the product is appropriate for your circumstances and seek independent professional advice. Refer to the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) on the provider\u2019s website.<\/p><\/div><\/div><\/div><\/div><\/div>\n\n\n\n<div style=\"height:23px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>Steven<\/p>\n\n\n\n<div style=\"height:36px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p><span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Reading Time: <\/span> <span class=\"rt-time\"> 9<\/span> <span class=\"rt-label rt-postfix\">minutes<\/span><\/span>Leverage trading is a powerful tool that allows you to control more substantial positions in the market than your available<\/p>\n","protected":false},"author":3,"featured_media":87933,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_uag_custom_page_level_css":"","_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"categories":[267,304],"tags":[],"class_list":["post-85329","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money","category-start-share-trading"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.0 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What Is Leverage in Trading?<\/title>\n<meta name=\"description\" content=\"What is leverage in trading, and why is it often called a double-edged sword that kills beginner traders and investors?\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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