Leverage

Leverage allows traders to control a large position with a relatively small amount of capital. It's expressed as a ratio, such as 2:1 or 10:1, indicating how much larger your position is compared to your actual capital. While leverage can amplify profits, it equally amplifies losses and can lead to rapid account depletion. Margin trading in stocks, forex trading, and futures contracts all involve leverage. Professional traders use leverage carefully with strict risk management, while beginners are often advised to avoid or minimize leverage until they develop consistent profitability.