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