What is leverage and why is it dangerous?

How leverage works

Leverage lets you control a large position with a small deposit. At 50:1 leverage, a $100 deposit controls $5,000 worth of currency. A 1% price move means a 50% gain or loss on your $100—not 1%. Higher leverage amplifies both profits and losses.

The danger

A trader might think: "I'll use 100:1 leverage to turn $1,000 into $10,000 quick." But a 1% adverse move wipes out the entire $1,000. It happens fast. Many retail traders blow up their accounts within weeks because they underestimate how quickly leverage can eliminate their capital.

Smart leverage use

Beginners should use 10:1 or lower until they consistently profit. Even experienced traders rarely use more than 20:1. Remember: leverage doesn't create profit, it just magnifies your existing edge (or mistakes). If you can't profit without leverage, leverage will only make losses bigger. Start small, prove your method works, then gradually increase size—not leverage.