Leverage Definition

Leverage allows traders to control a larger position size using a smaller amount of capital.

What is Leverage?

Leverage magnifies both potential profits and potential losses relative to the capital invested.

It is commonly expressed as a ratio, such as 1:10 or 1:100, indicating how much exposure is gained per unit of margin.

Using 1:20 leverage, a trader can control a $20,000 position with just $1,000 of margin.

A liability is a financial obligation or debt owed by an individual or company to another party.

LIBOR, the London Interbank Offered Rate, was a benchmark interest rate at which major banks historically lent to one another.

A limit order is an instruction to buy or sell an asset at a specified price or better.