Trading with Leverage on eToro? Better Read This Article First Before You Continue
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. Be sure to check out our full review to know more about this brokerage firm.
Table of Contents
- How Does Leverage Work?
What is leverage with example? (1min 4sec)
- Examples of Leverage in Financial Figure
User-friendly table for reference (12sec)
- Where Can I Use Leverage When Trading?
Why do traders use leverage? (17sec)
- Is Leverage Available for eToro USA Traders?
Are there leverage restrictions for US clients? (10sec)
- What is the Minimum Leverage?
What's the lowest leverage allowed? (11sec)
- What Are the Maximum Leverage Amounts Set on Various Investment Instruments?
What's the highest leverage I can use? (22sec)
- Trading with Higher Leverage for Professional Accounts
How to enable this feature? (32sec)
- How to Lessen Risk When Using Leverage?
How can the risk be reduced? (36sec)
- Is Leverage a Safe Trading Strategy?
Is leveraging a good idea? (23sec)
- How to Use Leverage on eToro?
Step-by-step guide (36sec)
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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.
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How Does Leverage Work?
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).
Examples of Leverage in Financial Figure
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:
|Invested Fund||Leverage||Trade Size|
Where Can I Use Leverage When Trading?
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.
Is Leverage Available for eToro USA Traders?
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.
What is the Minimum Leverage?
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.
What Are the Maximum Leverage Amounts Set on Various Investment Instruments?
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).
- x2 for CFD Crypto
- x5 for CFD stocks, ETFs and Securities
- x10 for commodities aside from Gold and other equity indices
- x20 for non-major currency pairs like the EUR/NZD, major indices and Gold
- x30 for big currency pairings such as the EUR/USD
Trading with Higher Leverage for Professional Accounts
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.
How to Lessen Risk When Using Leverage?
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.
- Stop-Loss: eToro traders can set a Stop Loss when closing a Trade just in case the market moves to an amount against your opening position.
- Take Profit: In eToro, you can set a Take Profit value if you wish to automatically close your trade position when profits from your trade reaches a certain amount you selected.
- Negative Balance Protection: eToro guarantees your account won't go negative just in case market conditions perform badly. This means, in any instances of your balance going negative, eToro will take the loss and balance your account to zero.
Is Leverage a Safe Trading Strategy?
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.
How to Use Leverage on eToro?
- Select an investment asset you want to trade on in the eToro platform. Then click TRADE.
- A popup window appears showing different trade parameters.
- Select the appropriate tab at the top for Sell (short) or Buy (long) for your trade.
- Key in the amount of capital you want to invest in the trade. Set your leverage multiplier (This ratio differs depending upon the individual asset).
- When you want to trade without using a Leverage, just set the leverage multiplier to 1x.
- Input your Stop-Loss and Take-Profit parameters (Stop-Loss limitation mitigates possible risks to your investment).
- Click "Open Trade" to start the trade (or "Set Order" to execute immediately upon the opening of the market).
Important to remember:
Leveraged trades are processed as CFDs.
Ready to trade with eToro?
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.
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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. 78% 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. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorised and regulated by the Cyprus Securities and Exchange Commission.
Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.
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.