Leverage: The Double Edged Sword

Leverage: The Double Edged Sword

Fully understand that leverage–that is, trading on margin–will work for you when you are making a profit, but will also work against you when you predict a market move incorrectly.

Fully understand that leverage–that is, trading on margin–will work for you when you are making a profit, but will also work against you when you predict a market move incorrectly. It is key for a trader to understand the difference between the required margin and the trade size. A margin requirement of $1,000 might actually mean a trade size of $100,000. This means that a 2% movement in the price of the instrument is actually a 2% move on $100,000, rather than $1,000.