Leverage and Margin

What is Leverage?

When trading online, brokers wish to enable traders to use more funds than they have, in order to give them the opportunity to make more profit. Therefore, a broker would lend a trader a sum of money at a fixed ratio (ranging between 1:2 and 1:400). It is important to keep in mind that losses are also leveraged.

What is Margin?

A margin is the relative amount needed to carry out a leveraged deal, taking into account spreads, leveraging, and currency conversions. Let’s say you want to invest $1,000 in Apple at a leverage of 1:10. The margin will be 10%, meaning you will need to invest $100. If the current stock price for Apple is $136, you will receive the equivalent 7.35 Apple shares.

How Does Leveraging Work?

Simply put, leverage is a temporary loan given to the trader by the broker at a fixed ratio. Using leverage, you can open a trade of a larger size than the actual amount of funds you invest in it. Leverage is presented in the form of a multiplier that shows how much larger than the invested amount (the actual amount that you invest in a trade) an open position is. In the trading world, leveraging is considered a double-edged sword, since it multiplies gains, as well as losses.

On eToro, leverage ranges between 1:2 and 1:400, depending on the asset. For example, for some assets, in order to open a $10,000 trade, you can invest 25$ with a leverage of 1:400. Alternatively, you can also trade without using leverage.

More examples:

Invested Amount Leverage Trade Size
$50 1:400 $20,000
$200 1:50 $10,000
$400 1:50 $20,000

 

  • On eToro, each instrument has its own leverage minimum and maximum, so make sure to choose a leverage level which is right for you.