More than a buzzword in the world of trading, "leverage" is first and foremost, a strategy in which an investor invest on financial products using borrowed funds from a broker like eToro, with an aim of maximizing potential yields. Leverage allow traders to use a provisional loan to open a position on a bigger trade while only spending a smaller amount of money they are willing to invest.
Essentially, by applying the leverage mechanism in trading, you increase the amount of your start-up investment into a trade of higher exposure in the market. Plus, it allows you to maximize potential earnings by upping the value of the transaction, in instances wherein your strategy proves profitable.
If you're already interested to trade with leverage on eToro and wondering where to begin, then the very first step is to open an account. To make things easier, you just need to click on the button below to get started.
67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Citing an example of Trader A. Trader A opens a trade and pools in money amounting to $2000 into a long stock position without any leverage. In instances of an advantageous increase in value of trader A’s stocks by 1%, Trader A’s profit shall increase correspondingly by 1%, therefore earning him/her a $20 profit, when translated into monetary equivalent.
When compared when using a leverage—let's say a x5 leverage—and the stock increases its value by 1%, Trader A’s profit will then become 5%, translating to a $100 profit.
In a nutshell:
When you invest $2,000 with no leverage at all, for every 1% movement in the market, you stand to gain or lose $20 which is the 1% of $2,000.
In comparison, when investing the same amount of money using a x5 leverage for example, for every 1% movement in the market, you may gain or lose a total of $100, which is 1% of $2,000 multiplied by 5.
When the value of the stocks goes down, your losses will be amplified accordingly. Remember though, that the total money you will lose will not be higher than the initial money you invested.
For example, if your balance totals $2,000 and you are trading with a leverage of 20:1, this means you can still invest $40,000 ($2,000 x 20).
Still a little confused on how leverage works? Here are some very basic examples of using leverage on investments and how it affects the trade size so you can understand it better:
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The Leverage trading strategy is commonly applied when trading stocks. However, leverage is becoming a widely-used mechanism when also trading for ETFs, currencies, commodities and indices, and in a currently growing trend, also in cryptocurrencies.
Each of these financial instruments has their own corresponding maximum leverage limitations as set by financial regulators.
No. eToro does not offer leveraged trading for USA clients due to regulatory compliance and restrictions. This feature is not enabled on any platform that is under eToro USA LLC.
All assets can be traded without using leverage which means the minimum for any instrument or product is X1 by default. That basically means the amount you're trading is not increased or multiplied.
Here are the maximum leverage amounts as set by global financial regulators like the Australian Securities and Investments Commission (ASIC), and the European Securities and Markets Authority (ESMA).
Using higher leverage is possible but this is only allowed for Professional account holders. In order to qualify, you will need to meet specific conditions and have the trading experience and knowledge.
Below are the higher leverages that are available for this particular account type:
Should you decide to use this feature and apply for a professional account, you just need to click on any of the high leverage which may range from x50 to x400 on the trading screen of an asset and this will open the Enable High Leverage Trading pop-up notification. Just click on “Continue” to proceed.
The good thing when applying the Leverage strategy on the eToro trading app, there is a risk management tool you can use to minimize financial risk.
Generally yes, as leverage provides traders with numerous benefits and helps in increasing potential profits. However, the leverage strategy also comes with its own risk. It can sometimes cause to amplify losses as well. Therefore, the leverage strategy must be used with clear understanding of risks involved and with caution.
Make sure to be updated with market volatility and understand the basics of trading concepts before maximizing the potential benefits of the leverage trading strategy.
Important to remember:
Leveraged trades are processed as CFDs.
Now that you have all the information that you need about leverage, you're probably more interested now about trading with eToro and wondering where to begin. The first step is to open an account and to make things easier, you just need to click on the button below to get started.
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.