A type or style of trading that involves the use of a fraction of the capital needed to take position in an underlying asset or investment. Leveraged trading entails the use of a smaller amount of capital to gain exposure to larger trade positions in an underlying asset or financial instrument. Venues of trading include forex (currency), commodities and indices. Access to these venues can be secured through different types of brokers.

In finance, leverage, also known as gearing, is a technique involving the use of borrowed funds to buy an asset or investment. In the specific context of trading, leverage (also known as margin trading) is the ratio (of total amount of “borrowed funds and own funds” to “own funds or equity”) applied to the margin amount to help determine the size of a position/ exposure. This represents the amount of capital that is required to have an open position in a trade. A leverage of 10:1 indicates that to open and maintain a position, the margin required is one tenth of the position size. So, a trader would require $1,000 (as own funds deposited in the trading account) to enter a trade for $10,000.

Leverage can be used across different types of financial markets including forex, indices, stocks, commodities, treasuries and exchange-traded funds (ETFs). As an example, leveraged stock trading allows investors to only pay a fraction or part of the full value of the share upfront or take ownership of the share as long as the margin requirements are met.

Leveraged trading can be beneficial to traders as it does not require paying the full amount of a position at the beginning in order to participate in large transactions. The higher the transaction amount, the higher is the effect of market changes on the balance of the entire margin account and the outcome of the transaction.

Leveraged trading increases investors’ exposure to the volatility of the position held. The lower the margin amount, the higher the leverage of the position will be. Furthermore, investors may lose more than the amount of equity or margin deposited, if a broker does not apply a policy waiving any excess losses arising on the position (a “no negative balance” policy).