📖 Financial Lexicon Term
What is Leverage?
A mechanism allowing traders to control a large position with a relatively small amount of capital. 1:100 leverage means $1,000 can control $100,000 worth of trades.
Detailed Explanation
Leverage acts as a multiplier of your purchasing power. By borrowing capital from the broker, you can open larger contract sizes with minimal collateral. While it scales profit potential, it equally scales drawdown speeds.
💡 Practical Trading Example
Using 1:500 leverage, a trader can open a standard lot of EUR/USD ($100,000) using only $200 of margin collateral in their account.