Leverage and margin when trading shares

Leverage and margin are simple. Your broker can offer you 2x, 4x 10x etc. leverage.

Leverage example

  • If you have $10,000, 4x leverage will enable you to trade with $40,000.

In this example you could make 4x the profits you normally would. Great eh? Wait a sec…

This also means you could lose money 4x as fast as you normally would! For this reason it is hard to recommend using leverage because it really does depend on what financial situation you are in and how good you are at trading shares. Many traders take up the option of leverage due the basic human emotion of greed! It is worth remembering, leverage is only good if you are making regular consistent profits!

Leverage can be good for people with a small starting capital as it can help them get off the ground quickly. It allows people with a small bank balance to obtain profits they never thought were possible. However it is worth choosing a broker that doesn’t allow you to lose more than you started with, as this could be financially disastrous!

Brokerage accounts typically offer you 1-4x leverage.
Spread betting accounts typically offer you 10x leverage.
FOREX accounts can offer you up to 400x leverage!

Using leverage when trading is worth thinking about if you are going to be trading full-time for a living, however it is recommended that you make consistent regular profits through fantasy trading and have a starting capital of $50,000 or less.


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