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 maximum leverage amounts, in accordance with applicable law, but eToro may choose to decrease the leverage on offer at any time.
The following maximum leverage amounts 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), as well as additional jurisdictions in which eToro operates:
- 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
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.
It is important to be aware that clients with Elective Professional status are not entitled to all protections that retail clients have under CySEC or FCA regulations. Furthermore, clients of eToro Australia Capital Pty are subject to different maximum leverage amounts and regulatory protections.
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/
To find out which regulation your account is under, please click here.