Leverage lets you control a position larger than your deposit. The gain from this grows in exactly the same proportion as the loss, and that's the main thing you need to understand about it. The mechanics differ from market to market: CFDs at a Forex broker, CME futures, and crypto exchanges all run on different rules.
What leverage actually does to your account
You open a large position by putting up only part of the notional as margin. From there, the financial result is calculated on the size of the position, not on the amount you deposited - which is exactly why a small price move can noticeably dent your account.
When things move against you, margin eventually runs out and the position gets closed by force. On top of that come the spread, commissions, overnight swaps, and slippage on entry and exit: the bigger the volume, the more expensive each of these becomes.
There's one point that often gets mixed up: if the position size stays the same, flipping the leverage setting only changes how much margin gets locked up. The profit or loss on the trade doesn't change by a single cent.
Common questions about margin and liquidation
Does 1:100 leverage mean I'm borrowing money and paying interest on it?
Not on CME futures: there, margin is a performance bond set by the exchange and clearinghouse. With a CFD broker, however, holding a position overnight can cost you a swap or a financing fee.
If I increase leverage, will my profit go up?
No. With the same position size, only the free margin on your account changes - the trade's result stays exactly the same.
Why did my position get closed even though the price bounced back afterward?
Because margin ran out before the price turned around. Forced closure is triggered by the current state of your account, not by where the market goes next.
Who sets margin requirements on futures?
The exchange and the clearing system set the baseline level, and the broker is free to require more.
Why traders use leverage, and what it costs you
The practical upside is simple: access to gold, currencies, indices, and crypto with a small deposit, the ability to avoid parking your whole capital in one position, and the option to hedge risk across other assets. Your money stays free instead of being locked up entirely in a single instrument.
The price you pay for this is just as clear. Losses scale with position size, the risk of a margin call goes up, commission and financing costs pile up, and sitting through a drawdown on a large position is psychologically much harder. Regulators keep saying the same thing: high leverage makes an account sensitive both to market moves and to trading costs.
Common questions about leverage risk
What leverage should a beginner start with?
It's better to start from risk: first decide how much you're willing to lose on a trade, then calculate the position size, and leverage falls out of that calculation as a consequence.
Can you trade without leverage at all?
On spot, yes. On futures, margin mechanics are built into the contract itself, but you're free to hold a size comparable to your own capital.
Why does my deposit shrink even when the price barely moved?
On a large position, spread, commissions, and swaps eat up a noticeable chunk of the account even in a sideways market.
How a broker makes money: A-book, B-book, hybrid
Leverage helps a broker attract clients with small capital and boost trading activity. Revenue from this can come from spread, commissions, and position financing fees, not only from other people's losses.
| Model | Who the counterparty is | Where the revenue comes from |
|---|---|---|
| A-book | External liquidity provider | Commissions, spread, fee payments |
| B-book | The broker itself | Gross result on client positions |
| Hybrid | Part internal, part external | Commissions plus managing overall exposure |
If a broker acts as the counterparty, there's a potential conflict of interest, and there's no point arguing otherwise. But that doesn't mean it's in the broker's interest for every single client to lose: large positions carry market and credit risk for the broker, and it has to manage and hedge that risk.
Common questions about execution models
Does the broker profit from my losses?
Depends on the model. Under an agency setup, revenue comes from commissions and spread, so your profit doesn't necessarily mean a loss for the broker.
What's the practical difference between A-book and B-book?
In A-book, the trade is passed on to an external counterparty; in B-book, the broker itself becomes the other side and manages its aggregate exposure.
Why would a broker offer high leverage?
It opens the market up to clients with small deposits and increases turnover, which is what commissions and spread are calculated on.
What changes if you increase leverage while keeping the position size the same?