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Leverage and Margin

The definition of leverage and margin

What is leverage?

Leverage means using capital borrowed from a broker when opening a position. Sometimes traders want to use leverage to get more exposure with less capital as part of their investment strategy. Leverage is applied in multiples of the trader's invested capital, for example 2x, 5x or higher, and the broker lends the trader the amount of money at a fixed ratio. Leverage can be applied to both buy (long) and sell (short) positions. It is important to note that both losses and wins are multiplied.

Was ist eine margin?

A margin is the relative amount required for a leveraged transaction to be executed, taking into account spreads (premiums), leverage and currency conversions. Let's say you want to invest $1,000 in Apple stock with a leverage of 1:10. The margin would be 10%, meaning you would have to invest $100. If the Apple share price is currently USD 136, you will receive the equivalent of 7.35 Apple shares

 

What can I do to minimize risk when trading with leverage?

 

While trading with leverage can lead to greater profits on successful trades, it also carries the risk of greater losses. However, risk management tools are available on eToro to help you reduce potential losses.

  • Stop Loss: Apply a stop loss to close a trade in the event the market moves a specified amount against your position. You can set your stop loss to a specific market price (rate) OR as a monetary amount, which is also displayed as a percentage of your initial investment in the trade window.

  • ​Take Profit: Set a take profit order to automatically close your position when the profit of your trade reaches the amount you choose.

Do you want to start trading?

You can open a free eToro account using the following button.

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