What is leverage and margin trading

The basic idea#

Leverage lets you open a trading position larger than the cash you actually have in your account, by borrowing the rest from your broker. If a broker offers "10:1 leverage," a $1,000 deposit lets you control a $10,000 position. Margin is the term for the portion of your own money that's tied up as collateral for that borrowed position.

Why it cuts both ways#

Leverage multiplies your result in both directions. With 10:1 leverage, a 5% move in your favor becomes a 50% gain on your deposit — but a 5% move against you becomes a 50% loss. Because losses are also magnified, it's possible to lose your entire deposit (and, in some products, more than you deposited) on a fairly small market move.

Margin calls and liquidation#

If a leveraged position moves against you enough, your broker will issue a margin call — a request to deposit more money to keep the position open — or automatically close ("liquidate") the position to stop your losses from exceeding what you've deposited. This can happen very quickly during volatile markets, sometimes faster than a trader can react.

Why this matters for spotting scams#

Legitimate leverage is a real, regulated product — but it's also a favorite hook for fake brokers, who advertise very high leverage (100:1, 500:1, or more) specifically because it makes it easy for a new trader to lose their entire deposit fast. Many regulators cap leverage available to retail clients for exactly this reason (for example, ESMA limits retail forex leverage to 30:1 in the EU); a platform offering far higher leverage than your local regulator allows, to retail customers in your country, is worth checking further before you deposit.