What is leverage?

Leverage, otherwise known as risk level, is a temporary loan given to the trader by the broker. It enables you, as the trader, to open a trade of a larger size with a smaller amount of invested capital. Leverage is presented in the form of a multiplier that shows how much more than the invested amount a position is worth.

The best way to understand leverage is through an example of how it affects your profit or loss potential. If you trade with no leverage at all and invest $1,000, for every 1% move in the market you can gain or lose $10, which equals 1% of $1,000.

In comparison, if you were to invest the same $1,000 and trade using x10 leverage, the dollar value of your position would be equal to $10,000.

1% of $10,000 equals $100, so for every 1% move in the market you can gain or lose $100.

 

When opening a trade, you can decide if you wish to use leverage or not. Different instruments have different leverage limitations.

The following limitations are defined by the European Securities and Markets Authority (ESMA), and apply to retail clients of eToro (Europe) Ltd (CySEC regulated) and eToro (UK) Ltd (FCA regulated):

  • x30 for major currency pairs (such as EUR/USD)
  • x20 for non-major currency pairs (such as EUR/NZD), Gold and major indices
  • x10 for commodities other than Gold and non-major equity indices
  • x5 for CFD stocks and ETFs
  • x2 for cryptocurrency CFDs.

 

Any retail client who meets certain criteria may opt in and apply to become an Elective Professional client in order to be outside these limitations. Please check out our dedicated Professional Trader page or the relevant blog post.

The Non-EEA retail clients of eToro (Europe) Ltd and eToro (UK) Ltd may continue to trade with higher leverage by applying to eToro Australia Capital Ltd on the platform.

It is important to be aware that clients with Elective Professional status and clients of eToro Australia Capital Ltd are not entitled to all protections that retail clients have under CySEC or FCA regulations.

The following limitations apply to Professional clients and clients of eToro Australia Capital Ltd (ASIC regulated):

  • x400 for currency pairs
  • x100 for commodities and indices
  • x20 for selected CFD stocks
  • x10 for other CFD stocks and ETFs
  • x2 for cryptocurrency CFDs.

 

Please note that the use of leverage carries with it a higher degree of risk because leverage augments both gains and losses. If you use leverage on a trade and the market moves against you, your loss per pip will be greater than if leverage had not been applied.

For more information about Leverage, please take a look at the following link: https://www.etoro.com/trading/academy/leverage-margin/

 

To find out which regulation your account is under, please click here.